Got a Tariff Refund Coming? How to Book It and When It's Taxable

By Abhinav Chhabra, Ledger Brigade | 16 October 2026

For many US importers, the tariffs paid in 2025 are starting to come back. In February the Supreme Court ruled that the International Emergency Economic Powers Act (IEEPA) does not authorise tariffs. Since then, US Customs and Border Protection (CBP) has been paying refunds through its CAPE system. This month, two things moved quickly:

• 6 October 2026: CBP launched Phase 3 of CAPE for finally liquidated entries. For now it covers importers that are plaintiffs in Court of International Trade (CIT) cases with court-ordered reliquidation.
• 8 October 2026: The CIT certified a nationwide class in Freestyle World v. United States. It covers importers of record who paid duties under the challenged IEEPA tariff orders from 1 February 2025 to 19 February 2026, except those who already filed their own lawsuits.

The cash is welcome, but the tariff you paid has probably already cut your tax bill.

What changed

The Supreme Court decided Learning Resources, Inc. v. Trump (with Trump v. V.O.S. Selections) on 20 February 2026. It held 6–3 that IEEPA doesn't give the President power to impose tariffs. The Court didn't rule on refunds. It left that to CBP and the CIT.

CBP has since built a staged refund process in ACE called CAPE. Earlier phases covered unliquidated and recently liquidated entries and some reconciliation entries. Phase 3, from 6 October, handles finally liquidated entries, but only where the court has ordered reliquidation.

The 8 October class certification matters most for smaller importers that never sued. Class members don't need to sign up. The class reportedly does not cover the separate IEEPA tariffs on Brazilian and Indian goods, so check which tariff orders your entries fall under. Certification is also not a refund order. The government is expected to appeal, and refunds for class members may take months. The parties must file a proposed scheduling order by 22 October 2026, which should show what happens next.

One more date to watch: importers who prefer to bring their own case must generally sue within two years under 28 U.S.C. §2636(i), and the class order doesn't say whether the class action pauses that deadline. If you're weighing your own claim, speak to customs counsel soon.

The numbers at a glance

What it means for your business

1. Only the importer of record gets the CBP refund

If you imported the goods yourself, the refund comes to you. If a distributor, freight forwarder or overseas supplier was the importer of record, CBP pays them, not you. Any money you get back depends on your contract with them. Non-US sellers who shipped "delivered duty paid" and were named as importer of record should check with customs counsel whether they're eligible.

2. A refund is usually taxable when you get it

Most businesses either deducted 2025 tariffs through cost of goods sold or capitalised them into inventory. The tax treatment follows what happened to the goods:

• Goods sold in a prior year: The tariff already lowered your taxable income. Under the tax benefit rule, the refund is generally income in the year you receive it (cash method) or when your right to it is fixed and the amount can be determined (accrual method). You generally don't amend the 2025 return.
• Goods still in inventory: The refund generally reduces the cost of that inventory rather than being immediate income. You feel it as higher profit when those goods sell.
• Goods sold in the same year as the refund: It simply nets against that year's cost of goods sold.
• Equipment and fixed assets: If you took 100% bonus depreciation, the refund is generally income. If you're depreciating the asset over time, the refund generally reduces its basis and future depreciation.

The tax benefit rule cuts both ways. If the original deduction didn't reduce your tax (for example, a loss you never used), part of the refund may not be taxable. That needs a proper look.

3. Interest is separate

CBP pays interest on refunds. That interest is ordinary taxable income. It doesn't reduce your cost of goods sold.

4. Customer pass-throughs

If you added a "tariff surcharge" to invoices, your customers may expect it back, and consumer class actions over passed-through tariffs are already moving through federal courts. Generally, you still include the refund in income and deduct what you repay customers when the obligation is fixed and you pay it. Your contracts decide what you owe, so get legal advice before you keep or return the money.

5. Books versus tax

For financial statements, an expected refund is usually a gain contingency and isn't recorded until it's realised or clearly realisable. Your accountant may treat refunds on unsold stock as a cost adjustment.

Worked examples (illustrative only)

Example A: Retailer, accrual method. A shop paid $40,000 of IEEPA duties in 2025. Goods carrying $30,000 of that duty were sold in 2025. Goods carrying the other $10,000 were still in stock on 1 January 2026 and sold during 2026. CBP approves a $40,000 refund plus $1,500 interest in November 2026. Roughly, the shop has $30,000 of income under the tax benefit rule, $10,000 lower cost of goods sold in 2026 and $1,500 of interest income. That's about $41,500 more taxable income for 2026.

Example B: Equipment. A workshop imported a $100,000 machine with $15,000 of IEEPA duty and took 100% bonus depreciation in 2025. The $15,000 refund is generally 2026 income. Had it used regular depreciation instead, the refund would generally reduce the machine's basis.

Example C: Surcharge passed on. A wholesaler billed customers $12,000 of tariff surcharges in 2025, and its contract requires it to pass back any refund. It includes the refund in income and deducts the $12,000 when it pays customers. The net effect is roughly neutral, but the timing matters at year-end.

Inventory method, entity structure and state tax all change the details.

Action checklist

• List every 2025–26 entry with IEEPA duty, and confirm who the importer of record was.
• Check with your customs broker whether each entry is unliquidated, recently liquidated or finally liquidated.
• Make sure ACH refund details are set up in ACE. Refunds without them are held.
• Split duty paid between goods sold, goods in stock and fixed assets.
• Review customer contracts and invoices for tariff surcharges or refund clauses.
• Track refund and interest amounts in separate ledger accounts.
• Add expected 2026 refunds to your Q4 estimated tax (corporations: 15 December 2026).
• Ignore unsolicited "refund recovery" offers. CBP has warned about CAPE refund fraud.

Frequently asked questions

Do I need to do anything to join the class? Not at this stage. Class members are included automatically. Watch for court updates in case action is needed later.

Is the whole refund taxable? Usually most of it is, if the tariff reduced your tax before. Refunds on goods still in stock generally reduce inventory cost instead. Interest is always taxable.

Should I amend my 2025 return? Generally no. The refund is normally reported in the year you receive it or your right to it becomes fixed.

I bought from a US distributor that imported the goods. Can I claim? Not from CBP. Only the importer of record is paid. Any recovery depends on your agreement with the distributor.

What about state tax? Most states start from federal taxable income, so the refund will usually flow through. Check your state's rules.

Need a hand?

If you're expecting a tariff refund and want to know how it hits your books and your 2026 tax bill, email hello@ledgerbrigade.com or book a free diagnostic call. We'll help you map your entries, set up the ledger accounts and understand the timing. This is general guidance; for filings and legal questions, work with your tax adviser and customs counsel.

Disclaimer: This article is general information, not tax or legal advice. Tariff refund rules and court proceedings are changing quickly. Figures and dates are as of 16 October 2026. Speak to a qualified tax adviser and customs counsel about your situation.

Sources

• Supreme Court decision summary, Learning Resources v. Trump (K&L Gates, 20 Feb 2026): klgates.com
• CIT class certification, Freestyle World v. United States (Miller & Chevalier, 12 Oct 2026): millerchevalier.com
• Steptoe, "Relief in Sight: CIT Certifies Class" (13 Oct 2026): steptoe.com
• Troutman Pepper Locke, "Getting Duties Back" (12 Oct 2026): troutman.com
• CBP, IEEPA Duty Refunds: cbp.gov
• C.H. Robinson, CAPE Phase 3 advisory (17 Sep 2026): chrobinson.com
• 26 U.S.C. §111 (tax benefit rule): law.cornell.edu
• 19 U.S.C. §1514 (protests): law.cornell.edu
• CBIZ, "The U.S. Federal Income Tax Treatment of Tariff Refunds" (11 May 2026): cbiz.com
• CLA, "IEEPA Tariff Refunds: 4 Common Tax Reporting Issues" (6 Aug 2026): claconnect.com
• IRS Fourth Quarter Tax Calendar: irs.gov