What Trump's $10B IRS Lawsuit Means for the 2026 Tax Season

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For most taxpayers, the 2026 filing season is already shaping up to be complicated due to a recent overhaul of many parts of the tax code. Now, things with the tax agency are getting messier.

Why? President Donald Trump is suing the Internal Revenue Service and the U.S. Treasury for $10 billion.

The lawsuit, filed last week in federal district court in Florida, alleges that the federal government failed to protect the Trump family’s tax records from illegal disclosure.

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The unprecedented claim brought by a sitting president arrives as a tax-industry watchdog is sounding the alarm. The warning is that budget constraints, staffing shortages, and a more complex tax code could disrupt this year’s filing season, particularly in the wake of the 2025 Trump-GOP tax law, also known by some as the "big beautiful bill."

This latest legal action not only raises questions about taxpayer privacy but also about conflict of interest and a potential for more widespread litigation, particularly if Trump's claim is successful.

But what does all of this mean for you and your taxes?

Trump IRS lawsuit: Alleged tax data breach

Trump, joined by his sons Eric Trump and Donald Trump Jr. and the Trump Organization, LLC, filed suit on January 29 in the U.S. District Court for the Southern District of Florida. They allege that the IRS and the Treasury Department were negligent regarding Trump's family and business tax returns and related information, which were unlawfully leaked to the public.

The complaint stems from disclosures made by a former IRS contractor, Charles Littilejohn, who accessed and shared tax records without authorization between 2018 and 2020. That contractor later pleaded guilty in 2023 and was sentenced to prison.

Trump’s filing argues that federal agencies failed to implement adequate safeguards, exposing sensitive financial information and causing lasting reputational and economic damage.

Via the lawsuit, Trump is seeking $10 billion in damages from the U.S. government. And as you might expect, reaction and backlash were swift.

"Donald Trump is a cheat and a grifter to his core, and for him to abuse his office in an attempt to steal $10 billion from the American taxpayer is a shameless, disgusting act of corruption," Ron Wyden (D-Ore.), ranking member of the U.S. Senate Finance Committee, said in a statement.

Sen. Thom Tillis of North Carolina, a Republican not seeking reelection this year, pondered on the Senate floor: "Where's that money coming from? The money fairies or your pocket?"

During an Air Force One gaggle on February 1, 2026, Trump was asked about a seeming conflict of interest, i.e., what it’s like to be both plaintiff and defendant in his lawsuit against the IRS and Treasury, and how any settlement might work in that unusual position. Trump reportedly responded that he might work out "some kind of a settlement" and suggested giving any proceeds to charity.

But amid the political back-and-forth, some industry professionals wonder about potential legal ramifications.

David Gair, partner at Troutman Pepper Locke, says that "most tax practitioners view these types of lawsuits as 'chasing good money after bad,' adding, "Most clients, when they understand what is involved with [such a case], would avoid the time, effort, and cost."

However, in an emailed statement provided to Kiplinger, Gair also noted that "the president’s actions are already making those affected by Mr. Littlejohn’s actions reconsider filing a lawsuit."

Gair explained: "President Trump has unprecedented control over the Department of Justice, and if he is successful with his lawsuit, then others should also have a greater chance of success with a Department of Justice that wants to make an example out of the IRS."

Taxpayer protection: Who's privacy matters?

Trump’s $10 billion IRS lawsuit highlights the long‑running tension between taxpayer privacy and government data‑sharing, and some see irony in that. As mentioned, the suit stems from the unauthorized disclosure of Trump’s tax returns by a former IRS contractor years ago.

Under Trump’s current administration, however, the IRS faces backlash for sharing taxpayer data with other agencies, including U.S. Immigration and Customs Enforcement (ICE). That cooperation, which reportedly included information about individual taxpayer identification numbers (ITINs) and taxpayer addresses, prompted lawsuits and has led to court‑ordered limits on such data‑sharing.

Some key points:

Federal law strictly limits the disclosure of tax return information, allowing it only in narrow circumstances such as authorized criminal investigations.
Last year, a coalition of small‑business groups, a tax clinic, and two unions sued the IRS over its data‑sharing with ICE.
In Center for Taxpayer Rights et al. v. IRS, a federal court issued a preliminary injunction blocking further data sharing with ICE while the case proceeds.

Privacy advocates argue that these exchanges violated federal confidentiality rules and eroded public trust.

"This unlawful data‑sharing is one of the worst attacks on Americans’ privacy in decades," Skye Perryman, president and CEO of Democracy Forward, which represented plaintiffs in the suit, said in a release regarding the case.

Perryman added, "The Trump‑Vance administration’s actions to share taxpayers’ most confidential data with ICE betray the promises our government has made and threaten public trust in the tax system."

The contrast is striking: the former president who once oversaw policies exposing others’ tax information is now suing the IRS for failing to safeguard his own. Trump seeks billions in damages for alleged breaches of his tax return information — a claim that, as Sen. Wyden stated in a release, represents "the height of hypocrisy."

More broadly, the case raises a fundamental question: can taxpayers, wealthy and prominent or not, trust the government to protect their most private financial data?

Note: Federal officials have previously acknowledged the breach but have not commented on the merits of Trump’s lawsuit.

Tax Season 2026 strain? IRS budget cuts, staffing losses and backlogs

Meanwhile, the lawsuit lands as a new report from the National Taxpayer Advocate warns that the IRS is entering the 2026 filing season with fewer resources and diminished capacity to help taxpayers who encounter problems.

According to the report, the agency has experienced a steep reduction in staffing over the past year, driven in part by funding constraints, layoffs spurred by the Department of Government Efficiency (DOGE), and a Trump administration-imposed hiring freeze.

"The IRS is simultaneously confronting a reduction of 27% of its workforce, leadership turnover, and the implementation of extensive and complex tax law changes" mandated by Republicans' tax and spending measure that President Donald Trump signed into law last summer," NTA Erin M. Collins wrote in the 2025 annual report to Congress.

Additionally, a proposed budget deal currently before Congress includes about $1.1 billion in reductions to the IRS’s base budget compared with FY 2025.
If approved, it would claw back an additional $11.6 billion in supplemental funding originally intended for long‑term modernization at the tax agency.

IRS officials have said that most filers should be able to submit returns and receive tax refunds without major disruption. But the report cautions that taxpayers who need assistance may face longer wait times, difficulty reaching trained agents, and extended delays in resolving disputes.

On the Horizon: SCOTUS tariff decision

And speaking of taxes and lawsuits…

A high-stakes legal battle has yet to fully unfold as the U.S. Supreme Court prepares to rule on the legality of President Trump’s sweeping tariffs program, a key part of his second-term economic agenda.

As Kiplinger has reported, the tariff case challenges the administration’s use of emergency powers to impose tariffs on major trading partners. It raises important questions about executive authority and congressional power regarding taxation.

Though Trump's tariffs have reportedly generated hundreds of billions in revenue, lower courts have found some aspects unlawful, which could potentially lead to refunds of tens of billions of dollars.

The outcome could impact supply chains, markets, and federal finance, especially if tariff revenues significantly affect budget projections.

A SCOTUS ruling is expected soon, and some businesses, like Costco, are already filing lawsuits to secure refunds if the court rules against the Trump administration.

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Kelley R. Taylor is the senior tax editor at Kiplinger.com, where she breaks down federal and state tax rules and news to help readers navigate their finances with confidence. A corporate attorney and business journalist with more than 20 years of experience, Kelley has helped taxpayers make sense of shifting U.S. tax law and policy from the Affordable Care Act (ACA) and the Tax Cuts and Jobs Act (TCJA), to SECURE 2.0, the Inflation Reduction Act, and most recently, the 2025 “Big, Beautiful Bill.” She has covered issues ranging from partnerships, carried interest, compensation and benefits, and tax‑exempt organizations to RMDs, capital gains taxes, and energy tax credits. Her award‑winning work has been featured in numerous national and specialty publications.