On February 20, 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (IEEPA) does not authorize the President to impose tariffs. The ruling invalidated a broad swath of tariffs that had been levied since early 2025 on goods from China, Canada, Mexico, and dozens of other trading partners, representing an estimated $165 billion or more in cumulative collections.
For finance teams, particularly those with significant imports, this ruling has immediate and far-reaching accounting implications that demand careful attention.
Background
Beginning in February 2025, the Trump administration used IEEPA as the legal authority to impose wide-ranging tariffs, which were subsequently challenged in multiple federal courts. Both the U.S. Court of International Trade and the U.S. Court of Appeals for the Federal Circuit ruled against the administration before the Supreme Court took up the consolidated cases on an expedited basis.
In last week’s Supreme Court ruling, Chief Justice John Roberts, writing for the majority, stated that IEEPA "contains no reference to tariffs or duties," and the Court would not infer such a sweeping grant of taxing authority from vague statutory language. The ruling drew on the "major questions doctrine," which requires Congress to speak clearly before delegating authority of enormous economic and political significance to the executive branch.
As of February 24, 2026, U.S. Customs and Border Protection (CBP) ceased collection of all IEEPA-based tariff codes.
The Refund Question: Can Importers Recoup the Tariffs They Paid?
Perhaps the most pressing issue for finance leaders is the question of refunds. The Supreme Court did not address whether the government is obligated to return the tariffs already collected, nor did it establish any mechanism or timeline for doing so. That question has been remanded to lower courts, and the Court of International Trade is expected to weigh in. However, the sheer volume of potential claims could create processing delays stretching well into 2027 or beyond.
For importers who paid IEEPA tariffs during 2025 and early 2026, preserving your legal rights is a critical first step. Importers may be able to seek refunds through CBP's administrative protest process. For entries that have already been finalized (liquidated), a protest must generally be filed no later than 180 days from the date of liquidation. Companies should work closely with customs counsel to assess the status of their entries and take timely protective action where appropriate.
Accounting Implications of the IEEPA Tariff Ruling
The Supreme Court ruling creates several accounting questions for finance teams to consider:
Inventory Costing
Under FASB guidance, tariffs incurred in connection with procuring inventory are required to be capitalized as part of inventory cost. This means that for the duration the IEEPA tariffs were in effect, any business that imported raw materials, components, or finished goods was required to include those tariff costs in the carrying value of inventory. As inventory was sold, those costs created upward pressure on COGS throughout 2025, compressing margins, particularly where businesses were unable to fully pass increased costs on to their customers.
Net Realizable Value (NRV) Considerations
A byproduct of elevated tariff costs is heightened inventory impairment risk. ASC 330 requires that inventory be stated at the lower of cost or net realizable value. Where tariff-inflated costs pushed carrying values above what goods could reasonably sell for in the marketplace, companies were, and may still be, required to write down inventory to NRV.
Critically, once inventory is written down, the reduced amount becomes the new cost basis. Under GAAP, that value cannot subsequently be written back up, even if market conditions improve or refunds are later received. This is an important and often overlooked constraint as businesses evaluate the accounting impact of a potential refund recovery.
Recognizing a Refund Receivable: A High Bar
This is where the ruling creates its most significant accounting complexity for finance teams. Under ASC 450, a receivable for tariff recovery can only be recognized when recovery is deemed probable. Achieving this threshold for refunds is likely not feasible today, as recovery would require additional litigation or administrative proceedings.
Given that the Supreme Court's ruling did not address the refund mechanism or guarantee reimbursement, and given that the Court of International Trade has yet to establish a process, recognizing a refund receivable on your balance sheet today would be difficult to support under GAAP for most companies.
Until there is a final legal determination or CBP issues definitive administrative guidance, companies should exercise caution and consult with their accounting advisors before recording any recovery asset.
Practical Steps for Finance Teams
Given the evolving landscape, we recommend the following actions:
- Document and organize all import records. Compile entry summaries, duty payment records, IEEPA tariff codes paid, and internal cost allocations for every relevant shipment from February 2025 through February 24, 2026.
- Review your inventory costing models. If your current inventory on hand was costed to include IEEPA tariffs, evaluate whether those costs are accurately captured and whether any NRV adjustments are needed going forward under the new tariff environment.
- Reassess your COGS and margin projections. The elimination of IEEPA tariffs prospectively will improve landed costs for new shipments, which should be reflected in updated costing models and financial forecasts.
- Coordinate with customs counsel. Preserve your right to seek refunds by taking appropriate protest actions within CBP's 180-day window for liquidated entries where applicable.
- Evaluate financial statement disclosures. For companies with open reporting periods, the ruling could be a significant subsequent event that should be carefully evaluated for disclosure.
Tax Implications of the IEEPA Tariff Ruling
The tax treatment of potential tariff refunds remains equally unresolved. Companies deducted capitalized tariff costs as they flowed through COGS in 2025 and early 2026. If refunds are ultimately received, those amounts could represent taxable income in the year of receipt, or potentially require amended returns, depending on guidance the IRS has yet to issue.
Finance teams should work with their tax advisors to model the potential tax impact of a refund recovery and ensure proper planning is in place.
A Note on the New Section 122 Global Tariff
In the immediate wake of the Supreme Court's decision, President Trump responded by announcing new tariffs under Section 122 of the Trade Act of 1974. Initially announced at 10 percent and subsequently increased to 15 percent, the Section 122 global tariff took effect February 24, 2026 and applies broadly to imports from all trading partners.
Section 122 is notable for two reasons. First, it caps tariff authority at 15 percent. Second, and critically for planning purposes, Section 122 tariffs are time-limited to 150 days under the statute. The administration has indicated it intends to use this window to initiate a series of Section 301 investigations under the Trade Act of 1974, which could serve as the legal basis for future tariffs that carry no such caps or time restrictions.
For manufacturing and distribution companies, this means the tariff environment is far from settled. New landed cost calculations should account for the 15 percent Section 122 surcharge, while supply chain and procurement teams should prepare for the possibility of additional tariffs emerging later in 2026 as those investigations proceed.
Next Steps for Businesses Following the IEEPA Tariff Reversal
The Supreme Court’s IEEPA tariff ruling marks a significant shift in the tariff landscape, but many critical questions remain unanswered. Refund mechanics, timing, accounting treatment, tax consequences, and the potential for additional tariffs later this year are all still evolving. As courts and federal agencies provide further guidance, the implications for importers and finance teams will continue to develop.
Even though the path toward tariff refunds is currently very unclear, it could be a good idea to start compiling the data you may need to claim a refund. We can assist with assembling and organizing your data and accumulating your tariff history, as well as provide guidance on how to navigate the accounting, tax, and planning considerations created by this rapidly changing environment.
We will also continue to monitor these developments and keep you informed as new information becomes available.
If you need assistance, or if you have any questions about these or any other matters, please do not hesitate to contact your Kreischer Miller relationship professional or any member of our team.
Information contained in this alert should not be construed as the rendering of specific accounting, tax, or advisory advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.