The following is a guest article by Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting. The views expressed are solely those of the author.

On February 20, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (IEEPA) did not authorize the President to impose tariffs and declared all tariffs imposed under IEEPA invalid. However, the Supreme Court did not establish a refund mechanism, instead leaving the matter to the Court of International Trade (CIT) and administrative agencies. The CIT has ordered Customs and Border Protection (CBP) to begin refunding unlawfully collected IEEPA tariffs.

CBP has begun accepting some refund applications, i.e., Phase 1, limited to unliquidated entries and entries liquidated within the last 80 days. CBP stated that 330,000 importers have paid IEEPA tariffs, totaling $166 billion. As of April 9, 56,497 importers had completed ACH registration in the portal, with potential total refunds (including interest) reaching $127 billion.

After Phase 1, disputes may arise regarding fully liquidated entries or importers not named as plaintiffs. The Department of Justice has indicated it may appeal the CIT's refund order concerning certain categories of importers.

Tax Treatment of Tariff Refunds

If tariffs reduced a company's reported income, refunds of those tariffs are generally includible in taxable income under the tax benefit rule. If tariffs were passed on to retailers and did not affect the importer's tax liability, the refund is not taxable to the importer. For companies still holding goods on which tariffs were paid, the refund will adjust the tax basis of those goods rather than trigger an immediate tax event.

Generally, only the importer of record that paid the tariffs or its customs broker can apply for a refund. If tariff costs were passed on to retailers, retailers may need to seek recovery from importers based on contract terms, purchase orders, or pricing provisions. Additionally, refunds received by consumers are generally not taxable because the extra amounts consumers paid due to tariffs at purchase did not provide a tax benefit.

Planning Strategies for Tariff Refunds

Importers

Importers should review tariffs paid since January 1, 2025, to determine which were imposed under the President's claimed IEEPA authority. Importers that have paid Phase 1 tariffs to CBP should register for refunds as soon as possible. For IEEPA tariffs not covered by Phase 1, importers should consider filing protests with CBP, requesting refunds from the CIT, or filing administrative protests with CBP. Some claims may require further litigation. Like CBP, the CIT may be overwhelmed by the volume of refund requests, and proceedings may be time-consuming.

Retailers

Retailers and other businesses that purchase from importers should review their purchase documents to determine whether and to what extent tariffs were passed on by importers. If IEEPA tariffs were passed on through price increases or explicit tariff surcharges, retailers should review their agreements with importers to determine whether there is a legal basis to seek recovery of additional payments from importers, regardless of whether importers have successfully obtained refunds. Claims are generally stronger if purchase agreements explicitly mention tariff surcharges.

Additionally, retailers should review purchase agreements and consider modifying language to strengthen their ability to recover passed-on tariffs in the future if tariffs are found to be illegal or unenforceable. Tariffs imposed under other laws may also face future challenges if statutory procedures are not followed. Retailers may also face pressure from customers for refunds, even if not required by the CIT.

Consumers

Consumers typically do not see explicit tariff surcharges in price increases when purchasing goods or services, although they may ultimately bear the economic burden of tariffs. Class action lawsuits have been filed against entities such as Costco, FedEx, and UPS based on unjust enrichment. However, litigation outcomes are uncertain. Some businesses may voluntarily offer some compensation to customers to maintain customer relationships.

Remaining Tariff Authority

The Supreme Court majority noted that the President has no inherent or implied authority to impose tariffs. The President must rely on specific powers granted by Congress to impose tariffs. Apart from IEEPA, a few other existing federal statutes may support the President's imposition of tariffs.

The net result is that the President currently lacks authority to impose global, unlimited revenue tariffs. Future tariffs will need to follow more detailed statutory procedures that take time to implement.

The Trump administration is seeking to impose tariffs under other statutory authorities. The administration has imposed tariffs on steel, automobiles, and aluminum, which are not affected by the Supreme Court's ruling. The administration has also imposed a global 15% tariff under another statutory authority, which requires congressional approval within 150 days.