News | A. J. Johnson Consulting Services

03/08/2025

Impact of Trump Administration's Regulatory Restructuring on HUD and IRS

By A.J. Johnson

The Trump administration's recent executive order on federal regulations, "Ensuring Lawful Governance and Implementing the President's 'Department of Government Efficiency' Deregulatory Initiative," signals significant changes for federal agencies. The order has particularly notable implications for the Department of Housing and Urban Development (HUD) and the Internal Revenue Service (IRS).

The New Regulatory Framework

On February 19, 2025, President Trump signed this executive order as part of a broader deregulatory agenda aimed at reducing what the administration views as bureaucratic overreach. The directive mandates that federal agencies conduct a comprehensive 60-day review of their regulatory frameworks to ensure alignment with both legal requirements and administration policies.

The order targets explicitly regulations considered:

Unconstitutional
Based on improper delegations of legislative power
Imposing excessive costs without clear public benefits
Harmful to national interests
Hindering development across various sectors

This order is part of a series of regulatory rollbacks, including directives like "Ensuring Accountability for All Agencies" and "Unleashing Prosperity Through Deregulation," which expand upon the administration's previous deregulatory efforts.

Specific Impacts on the IRS

The IRS faces several significant challenges under this new directive:

Continued Hiring Freeze: The executive order maintains an existing hiring freeze at the IRS, which will remain in effect until the Treasury Secretary, in consultation with the Office of Management and Budget (OMB) Director, determines that lifting it serves the national interest.
Increased White House Oversight: IRS regulations will once again be subject to White House review through the Office of Information and Regulatory Affairs (OIRA), reinstating a policy from Trump's first term that adds another layer of scrutiny to IRS rulemaking.
"10-for-1" Deregulation Mandate: The IRS must eliminate ten existing guidance documents for every new rule or guidance it issues, significantly constraining its ability to update tax regulations and provide new guidance.

These measures could substantially impact the IRS's capacity to uphold compliance and maintain operational efficiency, potentially affecting tax administration and enforcement nationwide.

Implications for HUD

For the Department of Housing and Urban Development, the executive order brings equally significant changes:

Comprehensive Program Review: The order requires a review of hundreds of HUD programs, potentially leading to significant restructuring or budget cuts.
Grant Funding Uncertainty: Although a federal court temporarily blocked a separate memo seeking to freeze federal grants, the administration's intent to reassess HUD funding remains evident.
"10-for-1" Rule Application: Like the IRS, HUD must adhere to the requirement of eliminating ten existing regulations for every new one proposed, which could significantly impact housing policy implementation and program management.

These changes may affect HUD's ability to administer housing assistance programs, enforce fair housing regulations, and support community development initiatives.

Legal and Procedural Challenges

The administration's deregulatory push faces potential legal obstacles:

Agencies seeking to rescind or modify rules must generally follow a new rulemaking process, including issuing a Notice of Proposed Rulemaking, collecting public comments, and finalizing the new rule.
Failure to adhere to these procedural requirements could expose regulatory rollbacks to legal challenges under the Administrative Procedure Act (APA).
The APA requires agencies to engage in reasoned decision-making when modifying or rescinding regulations, and courts may overturn agency decisions if this standard is not met.

Outlook

As the 60-day review period progresses, the IRS and HUD must navigate competing demands: implementing the administration's deregulatory agenda while maintaining their core functions and avoiding legal challenges. The outcome will likely reshape how these agencies operate and could have lasting implications for the United States’s tax administration and housing policy.

The full impact of these changes will become more evident as agencies determine which regulations to target and how to implement the administration's directives while fulfilling their statutory obligations.

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