Here’s the law:
Upon written request from the chairman of the Committee on Ways and Means of the House of Representatives, the chairman of the Committee on Finance of the Senate, or the chairman of the Joint Committee on Taxation, the Secretary [of the Treasury] shall furnish such committee with any return or return information specified in such request, except that any return or return information which can be associated with, or otherwise identify, directly or indirectly, a particular taxpayer shall be furnished to such committee only when sitting in closed executive session unless such taxpayer otherwise consents in writing to such disclosure.
Section 6103(f)(1) of the Internal Revenue Code (IRC)
There’s an excellent discussion of the legislative history at American Progress. Here’s a snip:
The legislative history behind the provision is richly described by University of Virginia School of Law Professor George Yin in a recent article. In sum, in 1922, President Warren Harding’s secretary of the interior accepted bribes from businessmen in exchange for favorable no-bid leases on public oil reserves, including the Teapot Dome oil field in Wyoming. Word of the shady transactions got out in the press, and Congress began a multiyear investigation. As part of that investigation, Congress sought some of the tax returns of those involved in the scandal. But President Harding’s successor, Calvin Coolidge, initially refused. At the time, Congress had no power to compel tax returns; the president had to approve any release, including to Congress. Although Coolidge ultimately granted Congress’ request, this episode helped convince Congress that its requests for tax return information to aid investigations should not be dependent on the president’s approval.
Around the same time, some members of Congress were also frustrated by their inability to obtain tax information from Treasury Secretary Andrew Mellon to determine whether his sprawling business interests influenced his recommendations to Congress on tax policy. Mellon was one of the country’s wealthiest men, and the tax policy changes he recommended to Congress would surely have affected his finances; thus, members sought information on those interests to determine how much weight to place on his recommendations. The Senate also launched an investigation into the Bureau of Internal Revenue, now known as the IRS, including whether it was showing favoritism toward businesses owned by Mellon. Senators found their investigation hampered by their reliance on the executive branch to obtain tax returns and by President Coolidge’s hostility to the investigation.
Against this background, Congress, via the Revenue Act of 1924, gave itself the power to compel the secretary of the treasury to furnish tax returns upon request. In approving the provision, legislators cited Congress’ need to review tax return information “to evaluate Administration tax proposals, develop its own tax legislative initiatives, and carry out investigations.” The provision faced opposition from some parties, including Coolidge, Mellon, and members of the business community, on the grounds that it could compromise taxpayer privacy. But in enacting the provision, Congress determined that access to tax returns was important for its legislative prerogatives, including gathering information for prospective legislation and performing oversight of the executive branch. The 1924 provision, with some amendments, is still in effect today.