Federal appeals court refuses to lift sanctions in Trump's $10 billion IRS suit, calling the case 'collusive'

A federal appeals court on Tuesday refused to lift sanctions against President Donald Trump and two of his attorneys in a $10 billion lawsuit against the Internal Revenue Service, leaving intact a lower-court ruling that the entire case was a coordinated scheme to unlock nearly $1.8 billion in taxpayer funds. The decision from a three-judge panel of the U.S. Court of Appeals for the Eleventh Circuit arrives as Congress is out of session before the November midterms and as a separate bipartisan Senate permitting deal lands with uncertain prospects in a lame-duck window.

What the court found

Trump, Donald Trump Jr., Eric Trump, and the Trump Organization sued the IRS and Treasury Department in January 2026 after the disclosure of confidential tax information linked to former IRS contractor Charles Littlejohn. The lawsuit sought at least $10 billion in damages.

Before any substantive legal process began, the case took an unusual turn after Trump's team voluntarily dismissed it. Former federal judges later urged the court to reopen proceedings after the DOJ announced a settlement agreement in which the Treasury Department would establish a $1.776 billion so-called "anti-weaponization" fund. Florida-based U.S. District Judge Kathleen Williams, an Obama appointee, examined that sequence and concluded the case was manufactured.

Williams found that the plaintiffs "improperly employed this lawsuit to justify a particular award" and that Trump's $10 billion case against the IRS was "brought for an improper purpose, to gain the imprimatur of judicial legitimacy for a 'settlement' that had no viable basis in law or fact." She also sanctioned two Trump attorneys in the process.

Tuesday's ruling from the 11th Circuit did not overturn her. In a 22-page order, the three-judge panel denied an emergency motion seeking to stay the sanctions, finding the parties had not shown they were likely to succeed in overturning the order while their appeal proceeds. The panel was blunt: "The appellants did not submit or offer any evidence to explain their litigation conduct or demonstrate that the lawsuit and the settlement were not collusive. Given the record before us, the appellants have not made a strong showing that the district court committed clear error in its collusion and bad faith findings," the 11th Circuit wrote.

The ruling does not finally resolve every issue in the appeal. Instead, it leaves the immediate sanctions and restrictions in place while the broader legal challenge continues. Williams has also prohibited the Trump administration from referring to the litigation around the case as reaching a settlement.

How the fund worked, and why it matters

The president, who sued his own administration in January over the leak of his tax returns, struck an agreement with the IRS in late May to dismiss the case, with the DOJ then creating an "anti-weaponization" fund to provide payments to those who claim to have been wronged by the government. Critics argued from the start that the White House was essentially writing itself a check through the courts.

Such matters must often be approved before a judge, and the DOJ created the now-defunct compensation fund outside of the court process. Williams's 56-page opinion called it exactly that: a situation where "there was never adverseness between the Parties; there was never a case or controversy; and there was never a question as to who would prevail."

Her ruling was particularly pointed about Trump's decision to file the suit years after the leak, at a moment when he had returned to office and had the power to fire everyone involved. That timing, she found, was not incidental.

What happens next

The sanctions stay on the books for now. The full merits appeal remains pending at the 11th Circuit, which means the White House could still seek a reversal. But Tuesday's order signals the panel is not inclined to give Trump's legal team easy exits. No hearing date has been set for oral arguments on the full appeal.

The administration did not immediately comment on the ruling. The White House's press shop did not respond to questions before publication.

Meanwhile: Senate drops permitting bill it cannot vote on

On the same day as the IRS ruling, a separate drama played out on Capitol Hill. Senators clinched a long-awaited construction permitting deal just before the chamber left Washington until after the midterm election, with the agreement struck by Sens. Shelley Moore Capito (R-W.Va.), Mike Lee (R-Utah), Sheldon Whitehouse (D-R.I.) and Martin Heinrich (D-N.M.).

The bill, officially the Bipartisan American Affordability and Jobs Act of 2026, would include "comprehensive reforms" to the nation's environmental review and permitting processes under the National Environmental Policy Act, a law that various industries have said takes too long and slows down infrastructure projects. It also includes measures to speed up federal approvals for energy projects, boost interregional transmission, and fast-track generation interconnection.

The catch: nobody will vote on it before Election Day. The bill will not come up for a vote in Congress before the election, as the House has already left town and the Senate is expected to recess. The bill could come up in a post-election lame-duck session, but its prospects are uncertain, and it is unclear if it would gain the support it needs to pass.

One sticking point is unresolved. Sen. Whitehouse said "the question of returning to regular order for wind and solar projects in the Trump administration" remains "unresolved," though he said lawmakers had received a "very reasonable opening proposal" from the White House.

Environmental groups are already pushing back. The Center for Biological Diversity argued that if the bill becomes law, "the paltry increases in renewable energy will be instantly devoured by AI data centers," and warned the legislation could also weaken key environmental and Tribal protections.

The midterm backdrop

Both stories land against a rapidly shifting electoral map. Sabato's Crystal Ball shifted 11 House races toward Democrats on Tuesday, citing national polling and greater enthusiasm among Democrats as reasons for the changes. Two Republican-held seats, Rep. Jen Kiggans in Virginia's 2nd Congressional District and Rep. Ryan Mackenzie in Pennsylvania's 7th District, moved from toss-ups to leaning Democratic.

Overall, Crystal Ball now rates 213 House seats as at least leaning Democratic, with 202 at least leaning Republican, and 20 toss-ups; 218 seats are needed for a majority. Coleman said Republicans had a "tough month" as Democrats expanded their lead on the House ballot, citing an Emerson College poll showing 78 percent of Democrats being excited to vote compared with 66 percent of Republican voters.

Decision Desk HQ, a partner with The Hill, projects a 68 percent chance that Democrats will reclaim control of the House, while Democrats and Republicans have a nearly split chance to control the Senate 51 to 49.

What to Watch

• 11th Circuit oral arguments: No date is set yet for a full hearing on the Trump IRS appeal. Watch for the administration to either push the case forward or quietly let the sanctions lapse, depending on political calculus after Election Day.
• Permitting deal in lame-duck: The Bipartisan American Affordability and Jobs Act of 2026 needs a floor vote that cannot happen until at least mid-November. Watch whether the White House puts its formal support on paper, and whether Whitehouse and Heinrich hold firm if the renewable energy language stays vague.
• ACA enrollment litigation: Federal courts in several circuits are watching the administration's removal of roughly 760,000 enrollees, representing about 4 percent of the estimated 19.2 million people receiving coverage through the marketplaces in 2026. Expect injunction filings from Democratic-led states within weeks.
• Supreme Court, October Term 2026: The court will kick off its 2026 to 2027 term with oral arguments in a lawsuit brought by a Colorado county seeking millions of dollars from oil and gas companies for their alleged role in exacerbating climate change, a case that could define the limits of state-court climate liability for years.
• Virginia's 1st District: An internal poll for Democrat Shannon Taylor showed Rep. Rob Wittman ahead by one point, prompting Crystal Ball's toss-up rating. Early-vote data from Virginia, which reports returns quickly on election night, will be the first real signal of whether the Democratic enthusiasm advantage is real or a polling artifact.

Sources: The Hill | NBC26/NBC News | Benzinga | International Business Times | CNBC | The Hill (permitting) | ACRA | The Hill (Crystal Ball) | University of Virginia Center for Politics | NBC News (ACA) | SCOTUSblog