Accounting Considerations Related to the Supreme Court’s Ruling on Tariffs
Background
Since February 2025, President Trump has issued executive orders that impose
tariffs on imports from several countries. These have included tariffs levied at
various rates under the International Emergency Economic Powers Act (IEEPA).
In response to the executive orders, a group of states and small businesses sued
the Trump administration, arguing that the president did not have authority
under IEEPA to impose broad tariffs. Lower courts agreed and ruled for the
plaintiffs in two separate cases in May 2025. The rulings were upheld on appeal.
In September 2025, the Trump administration asked the Supreme Court to hear its
appeal of the consolidated case on an expedited basis, and in November 2025, the
Supreme Court heard oral arguments. On February 20, 2026, the Court ruled in a
6-3 decision that IEEPA does not authorize the president to impose tariffs. The
majority opinion did not address tariff refunds. Consequently, there is
uncertainty associated with an entity’s ability to obtain a refund and the
process for trying to do so. Trade officials within the Trump administration
have indicated they need guidance on refunds from the Court of International
Trade (CIT).
Accounting considerations related to the Supreme Court’s ruling are discussed
below. For a discussion of accounting and financial reporting considerations
associated with assessing the practical effects of tariffs on an entity, see
Deloitte’s August 13, 2025, Accounting
Spotlight.
Accounting Considerations
Recognition and Measurement of Anticipated Refunds
If, before the ruling, an entity recognized costs attributable to tariffs
(e.g., expensed them as period costs, capitalized them into fixed assets and
subsequently recognized them in depreciation, or capitalized them into
inventory and subsequently recognized them in cost of sales), we believe
that the entity can apply the principles of the loss recovery model in ASC
410-301 by analogy to determine whether it may recognize and measure any
tariff refunds. Although ASC 410-30 addresses environmental matters, we
believe that it generally applies to recoveries of prior costs or losses.
Therefore, an entity could apply the principles in ASC 410-30-35-8 through
35-10 to determine the appropriate recognition and measurement.
In determining whether an asset can be recognized for any potential tariff
refund proceeds, an entity must compare the amount of the probable proceeds
with the related previously recognized cost, if any. That is, a recognized
asset is limited to the amount of previously recognized tariff costs, and
recovery must be probable.
When assessing whether a recovery is probable, an entity applies the loss
contingency model in ASC 450-20. For an entity to recognize a loss
contingency under ASC 450-20, it must be probable that one or more future
events will occur or fail to occur. In accordance with the ASC 450-20
glossary, a future event or events are “probable” if they are “likely to
occur.” While the glossary definition provides no quantitative thresholds,
“probable” does not imply virtual certainty under the loss contingency
model. Given the current lack of clarity related to the process by which an
entity may pursue tariff refunds and whether there will be legal challenges
to requested refunds, there is uncertainty associated with whether an entity
will be able to obtain or record an asset for such refunds. To determine
whether recognition is appropriate, entities should analyze all relevant
internal and external evidence, including:
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The nature and complexity of the refund process — Even if a formal refund process exists, recovery may be contingent on the completion of specific procedural steps (e.g., filing protests, petitions, or claims) and the submission of supporting documentation within prescribed timeframes. Eligibility criteria may also narrow the population of entities entitled to a refund, and an entity’s conclusion about its eligibility may need to be evaluated by legal counsel. Further, a currently unclear refund process may preclude a conclusion that recovery is probable (i.e., an entity would seemingly be unable to assert that compliance with an unknown process is probable). Although the ruling did not address the process by which an entity may pursue tariff refunds, the Supreme Court remanded the case to the CIT, which will decide on whether and, if so, how such refunds will be processed.
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Management’s decision related to how it intends to pursue a refund — On the basis of management’s evaluation of the expected costs, timing, operational burden, and likelihood of success relative to the potential recovery, an entity may be hesitant to pursue a refund or may elect to discontinue efforts during the process.
If recognition is not appropriate, no loss recovery is recorded unless
recovery becomes probable. A conclusion that a potential recovery is
probable may involve significant judgment and should be based on all
relevant facts and circumstances.
Liability Derecognition
Entities may have outstanding tariff payables as of a relevant balance sheet
date for amounts owed to the U.S. government when importing goods became
subject to tariffs that have since been invalidated by the Supreme Court’s
ruling. We believe that such payables represent liabilities within the scope
of ASC 405 and therefore should be derecognized when the entity “pays the
creditor and is relieved of its obligation” or “is legally released [as] the
primary obligor.” If the ruling voids the entity’s obligation to pay tariffs
that were previously accrued but not yet remitted, the entity should
derecognize the related payables in accordance with ASC 405 in the period in
which they are legally released. An entity should involve legal counsel for
assistance in assessing whether the ruling results in its legal release from
such obligation. If an entity concludes that its obligation to pay tariffs
is void, we believe that it should derecognize the outstanding payable as of
the date of the ruling, but not earlier.
Subsequent Events
Entities with reporting periods that ended before the Supreme Court’s ruling
and that have not yet issued their interim or annual financial statements
should consider the subsequent event guidance in ASC 855 to determine the
appropriate accounting treatment. Such entities should evaluate the effects
of the ruling on their financial statements and whether the ruling qualifies
as a Type 1 or Type 2 subsequent event.
We believe that it is appropriate to conclude that if the ruling was
announced after the balance sheet date, the subsequent event is a Type 2
(nonrecognized) subsequent event (e.g., akin to a change in law).
Consequently, ASC 855-10-50-2 would require disclosure of both “[t]he nature
of the event” and “[a]n estimate of its financial effect, or a statement
that such an estimate cannot be made” if the absence of such disclosure
would result in misleading financial statements.
Accounting Estimates
The anticipated impact of an expected change in tariff policy should
typically be factored into an entity’s accounting estimates as of the
balance sheet date, in a manner similar to other business assumptions (e.g.,
an entity’s estimate of costs related to satisfying performance obligations
in a contract with a customer). As discussed above, for entities whose
reporting periods ended before the Supreme Court ruling, we believe that it
is appropriate to conclude that the actual effect of the ruling on tariffs
that differ from those used in management’s estimates would be a
nonrecognized subsequent event. That is, management’s estimates would not be
adjusted to reflect the expected impact of the ruling after the balance
sheet date.
Impacts on Contracts With Customers
Entities may need to consider whether the Supreme Court’s ruling affects
rights and obligations under contracts with customers. For example, if an
entity’s contract with a customer permitted it to increase the price of its
goods or services as a result of the enacted tariffs (e.g., pass the cost of
the tariffs on to the customer), to the extent that those tariffs were
deemed not legal (and the entity may potentially recover previously paid
tariffs from the government), the entity may need to consider whether a
refund obligation exists under any of its contracts with customers. In a
manner similar to how an entity might consider the ruling to be akin to a
change in law when determining whether it is a Type 1 or Type 2 subsequent
event, the entity may reasonably conclude that a change in rights and
obligations under a contract with a customer as a result of the ruling is a
contract modification that should be accounted for as of the date of the
ruling in accordance with ASC 606-10-25-10 through 25-13.
Entities may receive customer claims (e.g., requests for refunds or credits)
related to perceived tariff-driven price increases even when a contract with
a customer does not address such price adjustments. Those claims do not, by
themselves, constitute a contract modification. However, entities should
consider their customary business practices, public statements, and implied
promises when evaluating whether customers might have a valid expectation
that they will be entitled to refunds. That is, an entity’s contracts with
customers could include an implied refund obligation related to tariffs that
are expected to be recovered. Entities will need to carefully consider their
facts and circumstances when evaluating whether a refund obligation exists.
Disclosures
Entities may need to provide disclosures about the impact of the Supreme
Court’s ruling in the footnotes to their financial statements (e.g., see ASC
275-10-50-6 through 50-8) as well as in other areas of their SEC filings,
such as in Management’s Discussion and Analysis or the risk factors section.
The extent of such disclosures would be based on the potential materiality
of the impact. For more information about disclosure considerations in
related circumstances, see Deloitte’s December 1, 2022, Financial Reporting Alert.
Contacts
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Andrew Pidgeon
Audit & Assurance
Partner
Deloitte &
Touche LLP
+1 415 783
6426
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Noah Antonneau
Audit & Assurance
Manager
Deloitte &
Touche LLP
+1 414 977
2606
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Footnotes
1
For titles of FASB Accounting Standards Codification (ASC)
references, see Deloitte’s “Titles
of Topics and Subtopics in the FASB Accounting Standards
Codification.”