The case centers on the Manhattan District Attorney's Office probe of Trump's involvement in hush-money payments to two women claiming affairs with him.
A federal judge on Wednesday ordered a one-day freeze on a state subpoena seeking eight years of President Donald Trump's personal and corporate tax returns.
U.S. District Judge Victor Marrero issued the ruling after an extraordinary court hearing that pitted Manhattan District Attorney Cyrus Vance's officeagainst the president's attorneys and Manhattan federal prosecutors in a dispute over whether state officials have any authority to bring a legal action against a sitting president.
Vance's prosecutors and the president's lawyers now have 24 hours to come to an interim agreement over what information can be handed over to a state grand jury. If no agreement is reached, the judge will decide whether to extend the deadline or issue a ruling.
The case centers on Vance's attempt to obtain Trump's tax records as part of a criminal investigation into the Trump Organization about hush money payments made to two women who have alleged affairs with Trump before he became president.
The president's lawyers filed a lawsuit last week seeking to block the subpoena. The suit says Vance isn't entitled to the returns and a sitting president cannot be criminally investigated. Trump also named his accountant Mazars USA as a defendant in the suit as part of his bid to prevent his financial records from being turned over to state prosecutors.
The case took a turn Tuesday night when federal prosecutors filed court papers saying they backed Trump's effort to pause the release of the tax documents. The Manhattan federal prosecutors said the president has raised "weighty constitutional issues" and they want time to review them before deciding whether to join the legal battle.
During the Wednesday hearing, Trump's attorney, William Consovoy, argued that the Constitution immunizes the president from criminal investigations. He said that if Vance were allowed to proceed with his subpoena, every state would have the green light to pursue a case against the president.
"This is untenable," said Consovoy who also expressed concerns about the documents being leaked.
Solomon Shinerock, arguing for Vance's office, rejected the argument that the president cannot be investigated. "They have no authority for the breathtaking breadth in their immunity," Shinerock said. "The true risk of harm here falls on the state judicial process."
Shinerock also resisted the attempt by federal prosecutors to intervene in the case.
"We question whether they should be allowed to appear now, at the eleventh hour," said Shinerock, who pushed for a quick decision given the ongoing grand jury probe and concerns over the statute of limitations.
After hearing the arguments, the judge raised the idea of a compromise — the handing over of records that don't deal directly with the president. Marrero suggested a model mirroring the Michael Cohen case in which a magistrate is selected to review documents to filter out those specific to the president.
"We cannot in good conscious agree to that," said Carey Dunne of Vance's office.
Marrero said he'd give the parties one day to see if they can resolve their impasse and agree to a compromise. The judge also set Monday as a deadline for the Justice Department to decide if it wanted to formally join the case.
Vance's office is probing hush money payments made during the 2016 election to adult film star Stormy Daniels and ex-Playboy model Karen McDougal, both of whom have alleged affairs with Trump. The president has denied the affairs.
The scope of the D.A.'s probe is unclear. One of the D.A.'s filings notes that the investigation targets "New York conduct" and has "yet to conclude as to specific charges or defendants." That section is followed by two pages that have been redacted in the public filing.
To date, the filings say the Trump Organization has provided 3,376 responsive pages already to the D.A.'s subpoenas and inquiries into the hush money payments, but no tax records.