Accounting Considerations Related to the Supreme Court’s Ruling on Tariffs (February 27, 2026; Last Updated June 30, 2026)

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:

• 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, uncertainty about the refund process for certain phases 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). [Updated June 30, 2026]
• 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.

An entity should continue to consider all facts and circumstances, including any present lack of clarity related to the exact CBP refund process, to determine whether recovery is probable. If recovery is not probable, an asset cannot be recognized.

An entity should evaluate the probability of recovery on an entry-by-entry basis. Such probability may depend on the phase that applies to an entry. For example, the cost of obtaining a refund may be based on the applicable phase and therefore affect the probability assessment.

The loss recovery model focuses, by analogy to ASC 410-30, on the recovery of costs that have been recognized in earnings. Entities applying that model to potential tariff refunds may question whether a refund asset can be recognized for IEEPA tariff costs that have not been recognized in earnings (e.g., costs capitalized into fixed assets that have not been depreciated, or costs capitalized into inventory that have not been recognized in cost of sales). We believe that it is acceptable, as an accounting policy, for an entity to do either of the following:

• Recognize an asset only for costs recognized in earnings, with an equivalent adjustment to the relevant expense (e.g., current-period offset to depreciation expense or cost of sales).
• In addition to recognizing an asset for tariff costs recognized as expense, recognize an asset for costs not yet recognized in earnings, with an equivalent adjustment to the relevant balance (e.g., reduction of fixed assets or inventory).

It may be appropriate for entities to consider their existing inventory capitalization policies and the application of ASC 705-20 to the recognition of amounts receivable from vendors or suppliers. For example, an entity may have capitalized tariffs as part of inventory. If that inventory remains on hand at the time the entity concludes that it is appropriate to record a tariff refund asset, it would be reasonable for the entity to reduce the carrying amount of the on-hand inventory by the amount that was previously capitalized for tariffs paid (if the amounts paid are included in the measurement of the tariff refund asset).

Tariff refunds should be presented in the statement of cash flows in a manner consistent with the original tariff payment. For example, if the original payment of the tariff cost was included in inventory and therefore was presented as an operating cash outflow, the receipt of the tariff refund should be presented as an operating cash inflow. Likewise, if the original payment of the tariff cost was recognized in property, plant, and equipment and therefore was presented as an investing cash outflow, the receipt of the tariff refund should be presented as an investing cash inflow.

There has been continued debate about acceptable models for recognizing tariff refunds. A number of stakeholders have indicated support for an analogy to the gain contingency model in ASC 450-30. Under that model, a receivable would only be recognized after all contingencies have been resolved and the gain is realized or realizable (i.e., the gain contingency model may delay asset recognition in some circumstances). We continue to believe that an analogy to ASC 410-30 represents the most appropriate model; however, we note that application of a gain contingency model may represent an acceptable alternative accounting policy.

Once the threshold for recognition under the gain contingency model has been met, an entity should classify the recognized tariff refund in a manner consistent with the classification under the loss recovery model, including cash flow presentation, as described above.

Under ASC 250, accounting policies must be applied consistently, and any changes to them must be preferable unless otherwise required by a Codification update. Therefore, entities should consistently apply either the loss recovery model or the gain contingency model to tariff refunds. In addition, entities should consider the disclosure requirements under ASC 235-10-50-1 if their tariff refund policy represents a significant accounting policy.

Entities may obtain cash from an investor or other provider of financing (a “funder”) in exchange for the rights to any cash flows the entity receives from CBP for IEEPA tariff refunds. We understand that despite the funder transaction, the entity (i.e., the importer of record) remains the party with the right to any CBP refund. Therefore, an entity’s tariff refund claim and any obligation to pass on any tariff refunds to the funder represent separate transactions (i.e., the transfer of rights to tariff refund collections to a funder does not affect the entity’s accounting for a potential tariff refund from CBP under a loss recovery or gain contingency model). U.S. GAAP may not explicitly contemplate such transactions; however, in a manner similar to other tax receivables, we do not believe that the potential tariff refund transactions are within the scope of the ASC 860 derecognition model. In addition, since the obligations to the funder are contractual, we do not believe that ASC 450 applies. Ultimately, while the form of arrangements may vary, we generally believe that whether executed before or after an entity’s recognition of a tariff refund asset (i.e., under either a loss recovery or gain contingency model), such transactions should be accounted for as financing transactions (e.g., akin to sales of future revenues under ASC 470). The financing should only be derecognized once legally extinguished in accordance with ASC 405. In addition, other accounting considerations could apply to those transactions (e.g., the contract with the funder could represent a derivative subject to ASC 815-10, include embedded derivatives that require separate recognition under ASC 815-15, or be eligible for fair value accounting under ASC 825). There is no standard form of transaction, and entities may need to address novel, incremental accounting considerations for each transaction. Given the potential for developments related to transaction forms and the IEEPA tariff refund settlement processes as well as an absence of prescriptive U.S. GAAP, entities are encouraged to consult with accounting advisers when determining the appropriate treatment of tariff refund monetization transactions.

Cash receipts from a funder should generally be presented as a financing cash inflow. Upon recovery of a tariff refund, cash received from CBP should be presented separately from amounts paid to a funder. Amounts paid to a funder should generally be allocated between operating and financing cash flows in a manner similar to zero-coupon bonds. That is, an amount up to the amount received from the funder should be presented as a financing cash outflow (i.e., akin to principal repayment), and any excess amounts should be presented as an operating cash outflow (i.e., akin to interest).

In addition to the recovery of previously recognized tariff costs, refunds from CBP include statutory interest accrued from the date of the tariff payment until the date the refund is issued. Amounts related to interest are not recoveries of previously recorded tariff costs and should therefore be assessed under a gain contingency model in accordance with ASC 450-30. In a manner consistent with that model, we generally do not believe that it is appropriate to recognize the interest component until all contingencies have been resolved and the interest component is realized or realizable. Therefore, if an entity applies the loss recovery model to tariff refunds, the timing of when it records a refund asset (i.e., the point at which the entity determines that recovery of the tariff refund is probable) may not coincide with the timing of when it recognizes the interest component. We generally believe that if the interest component of the refund is recognized, its presentation in other nonoperating income is acceptable.

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.

An entity may not be able to determine that the recovery of a tariff refund is probable as of the end of a reporting period (e.g., the entity may believe that the refund is reasonably possible). However, if developments after the end of the reporting period and before the entity’s issuance of its interim or annual financial statements3 indicate that recovery is probable (e.g., CBP clarifies the refund process, or the entity receives a refund), the entity would apply the following guidance:

• Loss recovery model — For an entity applying the loss recovery model by analogy to ASC 410-30, we believe that the developments after the end of the reporting period represent additional evidence about the conditions that existed as of the date of the balance sheet and that an asset therefore should be recognized as of the end of the reporting period in accordance with ASC 855.
• Gain contingency model — For an entity applying the gain contingency model, developments after the reporting period, including receipt of a tariff refund, should not be recognized as of the end of the reporting period. ASC 855-10-15-5(c) indicates that gain contingencies “are rarely recognized after the balance sheet date but before the financial statements are issued or are available to be issued” and provides a cross-reference to ASC 450-30-25-1, which states that “[a] contingency that might result in a gain usually should not be reflected in the financial statements because to do so might be to recognize revenue before its realization.”

If an entity’s obligation to refund tariffs to customers is predicated on the entity’s ability to recover tariffs paid to the government, the timing of recording a refund liability to customers might coincide with that of recording a refund asset. This is because when considering the guidance in ASC 606-10-32-27, an entity may conclude that it has only promised to pay consideration to a customer at the time it receives or otherwise recognized a right to receive tariff refunds from the government. However, careful consideration of the specific contractual terms and facts and circumstances is required.

Entities may also 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.