Steven Mnuchin, U.S. Treasury secretary, smiles as U.S. President Donald Trump speaks during the Opportunity Zone conference in Washington, D.C., U.S. (Photographer: Alex Wroblewski/Bloomberg)

Mnuchin Rejects House Democrats' Demand for Trump's Tax Returns

(Bloomberg) -- Treasury Secretary Steven Mnuchin refused to release President Donald Trump’s personal and business tax returns, setting up what could become one of the biggest legal showdowns between the president and a Congress seeking to investigate him.

The rejection of House Ways and Means Committee Chairman Richard Neal’s request for six years of the president’s returns opens the door for Democrats to pursue more forceful measures, such as issuing a subpoena or filing a lawsuit.

Mnuchin had put off a firm response for nearly a month but in a letter on Monday officially declined the request. He said the Justice Department would issue a published legal opinion affirming the decision “as soon as practicable.”

Mnuchin Rejects House Democrats' Demand for Trump's Tax Returns

“I have determined that the committee’s request lacks a legitimate legislative purpose,” Mnuchin said. “The department may not lawfully fulfill the committee’s request.”

In a statement after Mnuchin released his letter, Neal said he would “consult with counsel and determine the appropriate response.”

Democrats, citing a section of the tax code from 1924, say the law is on their side. The law allows the chairmen of the House Ways and Means and Senate Finance committees and the Joint Committee on Taxation to request the tax returns of any taxpayer and that the Treasury secretary “shall” provide them.

Neal has said that his committee needs the returns to ensure that the Internal Revenue Service is properly following its longstanding policy of auditing the president annually -- a reason that Mnuchin and other Republicans have said is merely a pretext for exposing Trump’s information.

In his letter, Mnuchin said he would “renew our previous offer to provide information concerning the committee’s stated interest in how the IRS conducts mandatory examinations of presidents.”

Neal, a Massachusetts Democrat, had initially requested that IRS Commissioner Charles Rettig hand over the returns by April 10. Mnuchin twice bucked the deadlines that Neal imposed, but said he would make the decision by Monday after consulting with the Justice Department.

“This absurd letter calls Congress doing its job ‘unprecedented.’ What’s unprecedented is this Secretary refusing to comply with our lawful, Article I request,” said Congressman Bill Pascrell, the New Jersey Democrat, in a written statement after the release of Mnuchin’s letter.

Neal could issue a subpoena, sue or do both, said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center. Either process is likely to take months, he added, which could make it difficult to get the case before the Supreme Court in the current session, which typically ends in June.

“The ball has been bounced back to Neal,” Rosenthal said. “He’s not going to accomplish anything by being nice any longer.”

The tax-return battle is just one front in Trump’s war against Democratic investigations of his conduct. In April, Trump and the Trump Organization asked a court to block a congressional subpoena seeking business records from his longtime accounting firm Mazars USA LLP.

Last week, Attorney General William Barr refused to testify before the House Judiciary Committee, citing the format set by its Democratic chairman, Jerrold Nadler of New York. House Democrats have said Barr should comply with their request to provide the unredacted report by Special Counsel Robert Mueller into about Russian interference in the 2016 election, or risk being held in contempt of Congress.

Democrats are looking for ways to compel the Trump administration to respond to their inquiries, such as fining officials who deny or ignore subpoenas. There’s even been some talk of jailing members of the administration who stonewall requests, though that is unlikely.

Trump broke with 40 years of presidential-campaign precedent when he refused to release his tax returns as a candidate. He said he was under audit and that he would consider releasing them when the audits were complete. No law prevents the release of tax returns that are under audit.

Democrats want the returns to see if he has ties to foreign businesses and whether he cheated on his taxes. They also want to see if he benefited from his 2017 tax overhaul. Trump has said he is worth more than $10 billion. The Bloomberg Billionaire Index pegs his wealth at $2.8 billion.

In an op-ed in Politico Magazine published on Saturday, University of Virginia law professor George Yin, who has researched the law governing Neal’s request, wrote that the chairman would be better off suing Mnuchin to enforce his request rather than issuing a subpoena. He argued it was unclear whether the request’s purpose was relevant under the law Neal had invoked.

Yin wrote that Treasury Secretary Andrew Mellon in the early 1920s faced a similar demand because Congress was worried that his extensive business interests might taint his approach to policy. After Congress passed the law, Mellon’s top deputy wrote to Mellon: “If they demand it we have no recourse.”

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