President Donald Trump is expected to drop his $10 billion lawsuit against the Internal Revenue Service in exchange for the creation of a $1.7 billion fund to compensate allies who claim they were wrongfully targeted by the Biden administration, sources familiar with the matter told ABC News.

The commission overseeing the compensation fund would have the total authority to hand out approximately $1.7 billion in taxpayer funds to settle claims brought by anyone who alleges they were harmed by the Biden administration's "weaponization" of the legal system, including the nearly 1,600 individuals charged in connection with the Jan. 6 Capitol attack as well as potentially entities associated with President Trump himself.

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The arrangement would be an unprecedented use of taxpayer dollars with little oversight. Under the terms of the potential settlement agreement, President Trump would have the authority to remove members of the commission running the fund without cause, and the commission would be under no obligation to disclose its procedures or decision-making process for awarding more than a billion dollars, the sources said.

The proposed creation of the compensation fund has led some administration officials to raise ethical concerns about the arrangement -- stemming not only from Trump suing his own government but also having control of an entity that can freely hand out $1.7 billion to his allies. When asked about his legal claims last year, Trump acknowledged the lawsuit "sort of looks bad," but claimed he would donate any money he receives from the claims to charity.

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