Donald Trump and his sons have dropped a major lawsuit against the Internal Revenue Service after the US Justice Department announced a new $1.776 billion compensation fund. The fund is meant to help people who claim they were unfairly targeted by the federal government. The decision quickly sparked criticism from Democrats and watchdog groups. Critics say the fund could become a secret system that benefits Trump allies and political supporters. The lawsuit centered on the leak of Trump’s tax records by a former IRS contractor. Trump had demanded $10 billion in damages after the records were shared with major news organizations. The Justice Department said the new “anti-weaponization” fund will review claims from people who believe they suffered because of political or legal actions by the government. Officials said the program is designed to restore trust and provide compensation where needed. Five commissioners will oversee the fund. Four of them will be appointed by the attorney general and can be removed by President Trump. A fifth commissioner will be selected after talks with congressional leaders. The fund will also have the authority to issue formal apologies. It will send private reports every three months to the US attorney general. There is no rule requiring those reports to be made public. Todd Blanche, the acting US attorney general, defended the move in a public statement. He said government agencies should never be used against political opponents or ordinary Americans. Blanche said the Justice Department wants to correct past wrongs and make sure similar actions do not happen again in the future. The agreement also states that once the money is transferred into the designated account, the federal government will not be responsible for protecting the funds from fraud, misuse, or bank failures. The Justice Department said Trump and his sons will not receive direct payments from the new fund. Instead, they will receive formal apologies as part of the agreement. Officials also said any money left in the fund after Trump leaves office will return to the federal government. The agreement does not include many limits on who can apply for compensation. Claims will be reviewed based on several factors. These include the strength of evidence, legal costs, time spent in prison, and other conditions the fund considers fair. The settlement was signed by Stanley Woodward, a senior Justice Department official. Woodward previously represented several Trump allies and January 6 defendants. As part of the deal, Trump also agreed to drop claims linked to the FBI search of Mar-a-Lago and the investigation into Russian interference in the 2016 election. The announcement came shortly before a court deadline in the case. A federal judge had asked both sides to explain whether a real legal dispute still existed because Trump now controls the executive branch, including the IRS. Trump’s lawyers quickly moved to dismiss the lawsuit before the judge could issue a ruling. They argued that no further court review was needed once the dismissal notice was filed. US District Judge Kathleen Williams dismissed the case on Monday evening. However, she noted that the agreement was not officially entered into court records as a formal settlement. Williams also said the dismissal removed her authority to continue overseeing the case. Lawyers appointed by the court had earlier argued that serious legal questions still remained. They said there was reason to believe the president was using his control over federal agencies during the lawsuit. Democrats strongly criticized the agreement. Ninety-three Democratic lawmakers filed a court brief arguing that the arrangement could violate federal law. House Minority Leader Hakeem Jeffries joined other lawmakers in opposing the deal. Watchdog groups also attacked the settlement. Andrew Warren of the Democracy Defenders Fund called the agreement “corruption in plain sight.” He accused Trump of directing taxpayer money toward political allies while many Americans continue to struggle with inflation and high living costs. Donald Sherman, president of Citizens for Responsibility and Ethics in Washington, warned that the settlement could violate the US Constitution’s domestic emoluments clause. Skye Perryman, president of Democracy Forward, also questioned the legality of the arrangement. She said the Justice Department must explain what legal authority supports the new compensation fund. The original lawsuit focused on Charles Littlejohn, a former IRS contractor accused of leaking Trump’s tax returns to media outlets. Legal experts expect more challenges in the coming weeks as watchdog groups prepare lawsuits against the new compensation program.