Navigating IEEPA Tariff Refunds: Key Accounting and Financial Reporting Issues

After the Supreme Court’s February 2026 ruling that tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were not authorized, the US Customs and Border Protection (CBP) established a process for organizations to submit refund requests through its Consolidated Administration and Processing of Entries (CAPE) system. Now, many organizations have started to see refund amounts hitting their bank accounts, causing many to question, “Now that I received a refund, how do I record it?”

Key Takeaways

• There is no one-size-fits-all accounting for IEEPA tariff refunds; organizations must first determine whether the refund meets the applicable recognition threshold and identify where the original tariff costs reside.
• The accounting impact depends on whether the related goods remain in inventory or have already been sold, which can affect inventory valuation, cost of sales, gross margins, and financial statement disclosures.
• Organizations should evaluate customer contracts, pricing arrangements, and other cost-sharing agreements, as tariff refunds may create additional obligations that affect revenue recognition, timing, and presentation.

Since inception, the IEEPA tariffs have caused a significant amount of uncertainty for importers, and, as a result, many organizations have struggled with how to update their recordkeeping and accounting practices to address these added inventory costs. Many have also taken a wait-and-see approach to the idea of receiving a refund, and now that they are here, addressing the uncertainties related to the accounting has become an immediate priority.

Treating the refund as a single line journal entry, debit cash and credit one account, ignores where the original tariff cost actually landed and what obligations might travel with the refund. Getting it wrong can impact revenue, margin, and inventory values all at the same time.

The first step is to determine if the refund has met the criteria for recognition. The IEEPA tariff is a real cost incurred directly in the acquisition of products. In the absence of direct guidance for tariff refunds, prevailing practice is to look at the loss-recovery model in ASC 410-30 or the gain-contingency model in ASC 450-30. The loss-recovery model permits recognizing a claim for recovery only when the claim is probable, as that term is defined in ASC-450. While a claim is subject to litigation, ASC 410-30 requires an organization to consider the legal challenge in assessing whether the refund is probable. In practice, that means a demonstrated intention to pursue the claim, completion of the administrative steps CBP requires, records strong enough to support the amount, and the administration’s appeal that the CIT overstepped its jurisdiction and equitable authority.

Under a gain-contingency model, the importer of record would recognize the refund when it is realized or realizable. A gain is realized when cash or other assets have been received without an expectation of repayment, and is realizable when assets are readily convertible to known amounts of cash or claims of cash (i.e., the refund has been received or approved for payment by CBP).

After assessing the timing and recognition threshold for recording the refund, organizations must next look at where the underlying good on which the tariff was charged is on the date of recognition. When goods are imported, any tariff is treated as part of the landed cost of the product. When the IEEPA tariffs were being collected, the importer of record capitalized the tariffs paid into the cost of that inventory. If some of those goods are still in inventory when the refund is recognized, the portion of the refund attributable to that inventory reduces its carrying value. In this case, there is no direct impact on the income statement accounts. The refund stays in the asset and reverses out through cost of sales later, when those goods are sold through.

This may sound straightforward, but it takes work in practice. An organization must first identify which units are still on hand and how much tariff cost remains in them. The organization’s costing method (FIFO, LIFO, weighted average, or specific identification) drives that answer. Reducing the cost of on-hand inventory can impact lower-of-cost-and-net-realizable-value considerations, so it is worth revisiting that assessment as part of the same exercise.

Additionally, not all tariffed imports were finished goods. Many items were component materials in other products, and tracing these items down may cause significant challenges and be time-consuming for organizations.

For goods that have been sold through to customers before the refund is recognized, prior period revenue and cost of sales are generally not recast. In this situation, if a refund relates to an amount that was previously part of the cost of sales, the importer would generally classify it as a reduction to cost of sales in the period the tariff refund is recognized. Because these refunds can distort gross margin comparability when recorded in cost of sales without explanation, many organizations are expanding disclosures around these amounts. In doing so, it is important to keep in mind the applicable disclosure requirements, including disclosure for any non-GAAP presentation items.

Organizations must also consider the potential impact of actions taken to offset the increased cost driven by the tariffs. In practice, many organizations increased prices to customers either through general price increases or specific itemization on invoices. Another common occurrence was negotiating cost-sharing with the organization’s vendors overseas. Now that refunds are coming in, these other parties who indirectly shared in the pricing impact are often seeking a share of the money coming back, especially in business-to-business sales where a company’s customers' contracts contain more complex pricing arrangements. This creates several additional complexities in the accounting. First, an organization needs to determine how this secondary impact should be accounted for.

If a customer has a legal right to a refund when the tariff is recovered, the importer will treat the change in tariffs as a change in variable consideration under ASC 606. If there is no legal right, an organization must consider whether the customer nonetheless has a valid expectation of a refund. Under ASC 606, a transaction price adjustment does not have to be explicit or legally enforceable. A valid expectation arising from customary practices, published policies, or specific statements can create an implied obligation that reduces the transaction price, and therefore revenue.

If neither a legal right nor a reasonable expectation exists, an organization may still choose to return some amount to keep a customer relationship healthy. That is a commercial decision with its own accounting implications. Depending on the facts, a voluntary payment to a customer may be considered a contract modification or consideration payable to a customer, and it must be evaluated for the timing and classification of recognition.

Next, an organization must consider the timing of the secondary impact recognition. The impact of the refund from CBP to the importer of record and the impact of concessions to customers and vendors may not always be recorded in the same period. Even with an IEEPA tariff refund in the bank, organizations continue to face a fair amount of uncertainty. There is uncertainty about how these refunds will trickle through the supply chain, and there is also uncertainty regarding their taxation. Certain states have begun exploring ways to capture part of the economic benefit of tariff-related recoveries. For example, New Jersey Assembly Bill 5227 proposes a 90% surtax on certain tariff refunds received by New Jersey corporate taxpayers. The bill has only been introduced and referred to committee, but it is a reminder that organizations may face state-level tax consequences on tariff recoveries that could affect cash flow planning, customer negotiations, and financial reporting.

If an organization has received a refund or expects one, the single-entry approach is the wrong starting point. Pull the details on which entries the refund covers, trace the tariff cost to where it lives today, and read the relevant customer contracts to establish a clear methodology for any adjustments. Confirm importer-of-record status and document the judgments on recognition, timing, and presentation while the reasoning is fresh, because these are the areas an auditor will test.

None of this produces one universal journal entry, and it is not meant to. The goal is to answer the right questions so the accounting reflects the economics. Each finance leader will need to make these determinations based on their own facts.

Does your organization need help working through how an IEEPA tariff refund affects inventory, margins, and customer contracts? EisnerAmper's Manufacturing and Distribution team can help. Contact us today to discuss how we can support you.