Democrats say Michael Cohen's dramatic testimony escalates need for Trump's tax returns

Congressional Democrats on Wednesday seized on testimony from longtime Trump Organization lawyer Michael Cohen, who called his former boss a "cheat" who lied about his personal finances, to buttress their case to demand copies of President Donald Trump's tax returns.

"Would it help for the committee to obtain federal and state tax returns from the president and his company?" asked Rep. Alexandria Ocasio-Cortez, a New York Democrat, after walking Cohen through a series of published accounts about Trump's efforts to reduce his tax bills.

"I believe so," Cohen replied.

Since taking control of the House of Representatives last month, Democrats have been grappling over the most legally sound approach to obtaining copies of Trump's tax returns from the Internal Revenue Service. Cohen's testimony before the House Oversight Committee, several members said afterward, laid out a road map of alleged misdeeds that could provide the ammunition needed to demand the president's returns.

"He brought out many situations where the tax returns are the only answer," said Rep. Bill Pascrell, D-N.J., who sits on the House Ways and Means Committee, which has the authority to demand copies of the returns from the IRS.

Pascrell noted that Cohen has laid out in detail how he received reimbursement for hush payments made to women who were alleging they had affairs with Trump.

"If Trump wrote those business expenses, that would constitute total fraud," Pascrell said. "That's a fraudulent scheme, and his tax returns would show that. That's why the returns are so important."

But Cohen laid out a series of financial transactions that legal experts told ABC News would sound alarms at the IRS.

He described, for instance, allegedly being asked by Trump "to find a straw bidder to purchase a portrait of him that was being auctioned at an Art Hamptons Event."

Cohen alleged that Trump's hope was to see that his portrait, which was going to be auctioned last, would go for the highest price of any portrait auctioned at the event. When the portrait ultimately was purchased by his representative -- for $60,000 -– Cohen said Trump "directed the Trump Foundation, which is supposed to be a charitable organization, to repay the fake bidder, despite keeping the art for himself."

Last year, that kind of transaction attracted the attention of the New York Attorney General's office and was one factor that New York officials cited when Trump's advisers decided to shutter his private charitable foundation.

Trump attorney Alan Futerfas said at the time that the foundation had "been seeking to dissolve and distribute its remaining assets to worthwhile charitable causes since Donald J. Trump's victory in the 2016 Presidential election. Unfortunately, the NYAG sought to prevent dissolution for almost two years, thereby depriving those most in need of nearly $1.7 million."

Douglas Varley, a charity tax expert at the Washington law firm Caplin & Drysdale, told ABC News an incident like the one described by Cohen also would likely raise red flags at the IRS.

"The question would be, What was the charitable purpose for acquiring that painting?" Varley said. And, even if there was a charitable purpose in acquiring the painting "there would still be a question of whether there would be too much benefit to Mr. Trump."

Cohen also described to the committee what he said was Trump's penchant for inflating or deflating his total assets "when it served his purposes." He provided copies of financial records he says Trump "gave to Deutsche Bank to inquire about a loan to buy the Buffalo Bills."

Sandra Moser, who served as head of the Justice Department's fraud division, and who now works in private practice at the Washington firm Quinn Emanuel, said those facts would attract the attention of law enforcement.

"Someone who lies about an issue of import to a financial institution like Deutsche Bank in order to get a loan -- regardless of what the loan is for or whether he actually obtains the loan -- would be guilty of one or more federal felonies, including bank fraud and making false statements for the purpose of influencing the bank," Moser said.

"Of course," Moser noted, "whether or not the financial statements Mr. Cohen spoke of were actually provided to the bank, or a loan application relying on the strength of those financials was in fact submitted, are important questions that would need to be answered before any charging decision would be made."

During Wednesday's hearing, Rep. Jimmy Gomez, D-Calif., asked Cohen if he could provide any insight "into what the real reason is that the president has refused to release his tax returns."

"The statement that he said to me," Cohen replied, "was that what he didn't want was to have an entire group of think tanks that are tax experts run through his tax return and start ripping it to pieces, and then he'll end up in an audit and he'll ultimately have taxable consequences, penalties and so on."

An obscure 1924 provision in the tax code spells out that the Treasury Secretary "shall furnish" any individuals' tax return information "upon written request" from the chairmen of certain congressional committees. Once provided, the tax information can only be reviewed in a closed session by certain members unless lawmakers vote to make it public.

Rudy Giuliani, a lawyer for Trump, has vowed to fight requests for the tax documents while the Treasury Department has signaled it would review the legality of a request, potentially prolonging the process via legal challenges. And legal experts warned that overly broad requests for Trump's personal tax filings could backfire for Democrats and establish unwanted precedents.

"A fishing expedition into the president's taxes could open up politically motivated efforts to divulge others' taxes, at the price of privacy," Harold Krent, dean of the Chicago-Kent College of Law, told ABC News recently.

House Ways and Means Chairman Richard Neal, D-Mass., has spent the opening weeks of the new Congress studying the best approach to obtaining Trump's filings.

Asked if Cohen's testimony had any impact on his plans or timeline for making the request, he said: "I can just tell you this, diligently the staff is preparing the documentation."

In part, he said he has sought ways to protect any request from a legal challenge that could ultimately impose new limits on Congress' limited power to review tax returns.

"We’ve got to figure out what is the most efficient way to make a request," he said when asked if they would limit the request to personal returns to present a stronger legal case.

"I think the challenge you have here is to resist the impulse to say or do something that clouds the case, a better or more deliberative case base on the advice of counsel," he added.

Pascrell told ABC News he believes Cohen's appearance Wednesday offers ample proof Democrats need to move more swiftly.

"We've lost two years, and it's time to wake up," he said. "We don't need to wait for anyone else to act or not act. ... There's a need, and Congress has the power to fill that need, and we have the law on our side."

Asked about Pascrell's position on obtaining the tax returns by a reporter on Thursday, Neal claimed Pascrell supports his methodical approach.

"He also told me on the phone yesterday that I was handling it the right way," he said.