Recent rulings mean that many importers will be entitled to refunds of tariffs they paid on imports during 2025 and 2026. As importers prepare to receive their refunds, they should also think about the tax implications. In many cases, recoveries of previously-paid amounts are taxable, and there may be other consequences.
Last summer, we wrote about some then-pending challenges to the Trump Administration's tariffs under the International Emergency Economic Powers Act ("IEEPA"). Those challenges came to fruition earlier this year.
At the end of February 2026, the U.S. Supreme Court held that IEEPA did not authorize the Trump Administration to impose tariffs. See Learning Resources, Inc. v. Trump, 146 S. Ct. 628 (Nos. 24-1287 and 25-250) (2026) (available here). Just two weeks later, the U.S. Court of International Trade ordered U.S. Customs and Border Protection ("CBP"), the agency responsible for collecting import duties, to refund all IEEPA tariffs. See Atmus Filtration, Inc. v. United States, No. 26-CV-01259, Dkt. No. 29 (Ct. In't Trade Mar. 5, 2026) (available here); see also Euro-Notions Florida, Inc. v. U.S. Customs and Border Protection, No. 25-CV-00595, Dkt. No. 12 (Ct. Int'l Trade Apr. 7, 2026) (available here).
These decisions translate to potentially millions of refund claims, totaling nearly $200 billion. CBP is currently working with the Court of International Trade to develop the Consolidated Administration and Processing of Entries (or "CAPE") system, a new functionality within CBP's Automated Commercial Environment (or "ACE") system, for importers to apply for and receive their refunds. See, e.g., Atmus Filtration, Inc. v. United States, No. 26-CV-01259, Dkt. No. 52 (Ct. Int'l. Trade Apr. 1, 2026) (available here). CBP began receiving refund requests for certain entries (i.e., CAPE declarations) on April 20, 2026. Certain other entries not permitted in CAPE Phase 1 (such as entries liquidated more than 80 days prior to submission of the CAPE declaration) are anticipated to be accepted in Phase 2 of the CAPE rollout. CBP has not yet provided a date for Phase 2. Importers should consider filing Protests for entries not eligible for Phase 1.
In the meantime, some importers have asked whether their tariff refunds will be taxable income. This can be a complex question, and the answer typically varies based upon each importer's specific situation and tax profile. However, there are some general principles that will be relevant to most importers. A few of these are discussed below.
Tax Benefit Rule. Under the "tax benefit rule," a recovery of an amount that was deducted in a prior year is often treated as taxable income in the year of the recovery. While there are some important exceptions to this rule, many importers who paid and deducted IEEPA tariffs on imports in 2025 and receive refunds in 2026 or later years will need to consider its impact.
Basis and Depreciation. Some importers paid IEEPA tariffs on assets used in their trades or businesses (that is, on capital equipment). These importers may not have received an immediate tax benefit for the tariffs that they paid, but instead may have capitalized the cost of the tariffs into their tax basis in the assets and have started to depreciate the assets. Tariff refunds may require basis adjustments and, in some cases, depreciation recovery.
Transfer Pricing. Many importers paid IEEPA tariffs on goods purchased from foreign affiliates. Depending upon how these importers treated the tariffs for their transfer pricing in 2025, their transfer pricing for 2026 (or subsequent years) may be affected by tariff refunds. Importers will also need to consider which party is entitled to the refund for transfer pricing purposes and whether refunds might have a cascading effect by altering entered value and other duties paid.
Practice Point
IEEPA tariff refunds will be a major boon to many businesses with global supply chains. However, as is the case with most windfalls, there may be tax consequences associated with the refunds. Importers should consult with their customs and tax advisors to both ensure that they take all necessary steps to receive their refunds, and to understand the economic and tax consequences of their refunds.
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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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