Donald Trump will drop his $10 billion lawsuit against the IRS in exchange for a $1.7 billion taxpayer-funded payout to his business entities and allies who claim the Biden administration wrongfully targeted them.

The commission overseeing Trump's fund would have complete authority to distribute the money to anyone alleging harm from the Biden administration's 'weaponization' of the legal system, including nearly 1,600 January 6 defendants. 

While Trump is barred from directly receiving payments on those three claims, entities associated with him are not explicitly prohibited from filing additional ones, according to ABC News.

Along with a public apology from the IRS, the fund is the main condition for Trump to drop the $10 billion suit over the 2019 leak of his tax returns, as well as $230 million in claims tied to the 2022 Mar-a-Lago search and the Russia collusion investigation.

Trump would also have the power to remove commission members without cause, and the panel would face no obligation to disclose how it awards the funds.

Some administration officials have raised ethical concerns over the arrangement, and Trump himself conceded last October that 'it's awfully strange to make a decision where I'm paying myself.' 

A spokesperson for Trump's legal team said the IRS 'wrongly allowed a rogue, politically-motivated employee to leak private and confidential information' about Trump and his businesses to media outlets. 

The Justice Department declined to comment. Trump vowed to donate any proceeds he receives from the lawsuit to charity.

At the start of his second term, Trump issued a blanket pardon for all defendants charged in connection with the January 6 riot. 

Many of those pardoned have since begun seeking payouts from the federal government, claiming they were wrongfully targeted by the Biden DOJ. 

Trump has previously signaled openness to compensating the rioters, stating that 'a lot of the people that are in government now talk about it.'

The settlement between Trump and the IRS comes after a federal judge overseeing Trump's $10 billion lawsuit ordered the DOJ and President to justify why the case should proceed by next week.  

Last month, Judge Kathleen Williams appeared skeptical that Trump and the Treasury Department were 'sufficiently adverse' for the case to proceed.

'Moreover, although President Trump avers that he is bringing this lawsuit in his personal capacity, he is the sitting president and his named adversaries are entities whose decisions are subject to his direction,' Williams wrote.

'Indeed, President Trump's own remarks about this matter acknowledge the unique dynamic of this litigation.'

Judge Williams also recently appointed a group of six well-respected attorneys with no involvement in the case to advise her on whether Trump's lawsuit is legitimate. 

If a settlement is reached before she rules on the lawsuit's validity, she would have limited legal authority to block it.