If you’re an importer who paid IEEPA tariffs between February 2025 and February 2026, your Q2 2026 financial statements need to reflect what’s happened. The Supreme Court ruled those tariffs unconstitutional. The CIT ordered CBP to process refunds. You’re owed money. The question your accounting team is wrestling with right now is: how does this show up on the books?
This isn’t a hypothetical exercise. Your auditors will ask about it. Your board will want to see it. And depending on how you treat the refund — as a contingent asset, a receivable, or something else — the impact on your balance sheet, income statement, and key financial ratios could be significant.
Here’s the framework your finance team needs to apply, broken down by the level of certainty around your specific recovery.
The Starting Point: Where IEEPA Duties Sit on Your Books Today
When you paid IEEPA tariffs on imports, those costs most likely flowed into one of two places: cost of goods sold (if the inventory was sold in the same period) or inventory (if the goods were still on hand at period end). Either way, the tariff payments hit your books as an expense or an asset cost, reducing reported earnings or increasing your inventory carrying value.
Following the Supreme Court’s February 20, 2026 ruling and the CIT’s March 4 order directing CBP to issue refunds, those amounts are no longer legitimate costs. They’re recoverable. The accounting question is when and how to recognize that recovery.
The answer depends on which accounting standard applies and where your specific claim falls on the certainty spectrum.
GAAP Framework: ASC 450 vs. ASC 606
Two primary standards may apply, depending on how your company characterizes the refund.
ASC 450-20: Contingencies (Gain Contingencies)
Under ASC 450-20, gain contingencies — situations where you might receive an asset or reduce a liability — are not recognized in the financial statements until the gain is realized or realizable. The standard is intentionally conservative: you don’t book a gain contingency until it’s essentially in hand.
However, there’s an important nuance. ASC 450-20 requires disclosure of gain contingencies when realization is probable, even if recognition isn’t appropriate yet. For most importers, the IEEPA refund likely meets the disclosure threshold after the Supreme Court ruling.
The key question is whether your specific refund has progressed beyond contingency status. If you’ve filed your claims, your data is validated, and you’re in the CAPE queue, many auditors will agree that the refund is sufficiently certain to warrant recognition as a receivable.
ASC 606 and Government Refunds
ASC 606 (Revenue from Contracts with Customers) doesn’t directly apply to tariff refunds — there’s no customer contract. However, some companies may look to the broader principle of variable consideration for analogous treatment. In practice, most companies will handle IEEPA refunds through ASC 450 or through a reduction of the original cost (reversing the COGS or inventory impact).
The Practical Approach Most Companies Are Taking
For Q2 2026 financial statements, companies are generally falling into three buckets based on the status of their claims:
| Claim Status | Typical Treatment | Balance Sheet Impact |
|---|---|---|
| Filed and in CAPE queue | Recognize receivable | Asset increase, COGS reduction or gain |
| Data prepared, not yet filed | Disclosure only | Footnote describing contingent asset |
| Not yet assessed | Possible disclosure | Footnote if material |
Your Impact Assessment provides the underlying data — total duties paid, entry statuses, estimated interest — that your accounting team needs to determine which bucket applies.
Get your free Impact Assessment →
Balance Sheet Impact: Recognizing the Receivable
When your company determines that recognition is appropriate, the refund creates a receivable on the balance sheet. Here’s how that plays out:
If original duties were expensed as COGS:
- Debit: Tariff refund receivable (current or non-current asset, depending on expected collection timeline)
- Credit: Reduction of cost of goods sold (current period) or gain on tariff recovery (if related to a prior period)
If original duties are still in inventory:
- Debit: Tariff refund receivable
- Credit: Inventory (reducing the carrying cost to the correct amount)
The classification as current vs. non-current depends on when you expect to collect. If you’re in an early CAPE queue position and expect collection within 12 months, it’s a current asset. If you’re looking at 18-36 months, it may be non-current — or split between the two.
The interest component is separate. Statutory interest under 19 U.S.C. Section 1505(c) accrues on refund amounts and should be recognized as interest income, not as a reduction of COGS. Most companies will accrue this as it becomes measurable.
Impact on Financial Ratios
Recognizing a large receivable can meaningfully affect your financial ratios:
- Current ratio improves if the receivable is classified as current
- Gross margin improves if the COGS reduction flows through the income statement
- Working capital increases by the recognized amount
- Debt-to-equity ratio improves as equity increases from the recognized gain
For companies with debt covenants tied to these ratios, the timing and treatment of recognition matters. Talk to your lender if your covenants are tight — a large receivable recognition could provide covenant relief.
Income Statement Treatment
The income statement impact depends on whether you treat the recovery as a current-period item or a prior-period adjustment.
Current-Period Treatment
Most companies will recognize the recovery in the period when recognition criteria are met (likely Q1 or Q2 2026). This shows up as either:
- A reduction of COGS in the current period (most common for recoveries related to goods already sold)
- A separate line item for tariff recovery gain (used when the amount is large enough to be material and distinct)
Either way, the income statement impact is positive. For a company with $5 million in IEEPA exposure, recognition could add $5 million to pre-tax income — plus accrued statutory interest.
Prior-Period Adjustment
In limited cases — typically when the refund relates to financial statements that contained a material error — a prior-period adjustment under ASC 250 might be appropriate. However, the original recording of IEEPA duties as costs was correct at the time (the tariffs were legally imposed and enforced). The Supreme Court ruling represents a change in circumstances, not a correction of an error. Most auditors will agree that current-period treatment is appropriate.
Disclosure Requirements
Whether or not you recognize the refund as a receivable, you’ll likely need to disclose it. ASC 450-20-50 requires disclosure of gain contingencies when the probability of realization is better than remote.
After the Supreme Court ruling, IEEPA refund eligibility is essentially certain for any importer who paid duties under HTS headings 9903.01 or 9903.02. The only uncertainty relates to timing and the exact amount (which depends on interest calculations and any adjustments during processing).
A typical disclosure note might read:
“In February 2026, the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act were unconstitutional. The Company paid approximately $X million in IEEPA tariffs between February 2025 and February 2026. Based on subsequent court orders directing U.S. Customs and Border Protection to process refunds, the Company has recognized a receivable of $X million [or: the Company believes it is probable that it will recover substantially all of these amounts]. Recovery is expected within [12-36] months through CBP’s administrative refund process.”
The exact language will depend on your auditor’s judgment and your specific claim status. The complete guide to IEEPA refunds provides additional context on the legal certainty supporting recognition.
Different Treatment by Recovery Path
The accounting treatment may differ depending on which recovery path you pursue.
Government Recovery (CAPE, PSC, Protest)
If you’re filing through the government process, the receivable is from the U.S. government. Credit risk is essentially zero — the question is only timing. This supports recognition at full face value (no allowance for credit losses), with the only uncertainty being the timing of collection.
Immediate Capital (Claim Assignment)
If you assign your claim for immediate capital, the accounting is different. You’re receiving a cash payment now in exchange for transferring your right to the government refund. The transaction is essentially a sale of a receivable.
In this case:
- Cash received: The discounted payment amount
- Receivable derecognized: The full face value of the assigned claim
- Loss on sale: The difference between face value and cash received
This is a realized transaction — no estimation or contingency analysis required. The certainty of immediate capital has a corresponding benefit in simplified accounting treatment.
For companies using a hybrid approach — filing some claims through CAPE and assigning others — you’ll have both treatments on your books simultaneously.
What Your Auditors Are Asking
Based on conversations across the industry, here are the questions auditors are raising about IEEPA refund treatment:
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“What is the legal basis for recovery?” — Point them to the Supreme Court ruling and the CIT’s March 4 order. The legal foundation is as strong as it gets.
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“Is the amount reasonably estimable?” — Your ES-003 entry summary data provides the exact duty amounts paid. Interest can be estimated using the published statutory rate. An Impact Assessment provides this in an auditor-ready format.
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“What is the expected collection timeline?” — This depends on your CAPE queue position. Early filers may expect 12-18 months; later filers 24-36 months. Classification as current vs. non-current follows from this estimate.
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“Has the company considered impairment or credit risk?” — For government receivables, credit risk is negligible. Impairment analysis is straightforward.
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“Are there any offsets or deductions?” — CBP may make adjustments during processing if entry data is incorrect. The amount recognized should reflect your best estimate of the net recoverable amount.
Practical Steps for Your Q2 Close
Here’s a checklist for your finance team as you approach the Q2 2026 close:
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Quantify your exposure. Pull ES-003 reports or request an Impact Assessment to identify all IEEPA entries and calculate total duties paid.
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Assess recognition criteria. Determine whether your claims have progressed to the point where recognition as a receivable is appropriate under ASC 450-20.
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Classify the receivable. Based on your expected collection timeline, determine current vs. non-current classification.
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Separate principal and interest. The duty refund reduces COGS or creates a recovery gain. The interest component is interest income.
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Draft disclosure language. Even if you don’t recognize a receivable, you’ll likely need a footnote.
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Coordinate with your auditor. Share your analysis and supporting documentation early. Auditors who haven’t encountered IEEPA refunds before may need time to review the legal and regulatory background.
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Consider recovery path decisions. If you’re evaluating immediate capital for any portion of your claims, factor in the simpler accounting treatment as an additional benefit.
The cost of waiting analysis can help frame the financial argument for accelerating your claim preparation — both from a time-value perspective and for the accounting clarity it provides.
Customer Pass-Through Obligations
If your company passed IEEPA tariff costs through to customers — via tariff surcharges, price increases, or contractual pass-through provisions — the refund raises an additional financial statement question: do you owe any portion of the recovery to your customers?
This isn’t an accounting question alone. It’s a legal question that depends on the specific language in your contracts, purchase orders, and pricing communications. But it has direct financial statement implications.
When to Accrue a Liability
If your contracts include explicit tariff pass-through provisions that obligate you to refund customers when tariffs are reversed, you likely need to accrue a liability for the expected pass-through payments simultaneously with recognizing the refund receivable. The net impact on your financial statements would be the difference — which may be significantly less than the gross refund.
When Disclosure Is Sufficient
If your contracts don’t include explicit refund obligations but you raised prices generally and customers might assert equitable claims, disclosure of the potential obligation may be sufficient. The language would note that the company is evaluating potential customer claims related to tariff-related pricing adjustments.
The Practical Reality
Most importers who raised prices did so through general price increases, not explicit tariff surcharges. In these cases, the legal basis for customer claims is weak, and accrual is likely unnecessary. However, companies that added line-item “tariff surcharges” to invoices face a more complex analysis. Consult with counsel early — this issue intersects with both contract law and accounting.
Interim Financial Statements and Quarterly Reporting
For companies that issue interim financial statements (quarterly reports to investors, lenders, or partners), the IEEPA refund must be addressed beginning in the first reporting period after the Supreme Court ruling.
Q1 2026 (January - March)
If your fiscal Q1 includes the February 20 ruling date, you should have addressed the refund in your Q1 interim financials — at minimum as a disclosure. If you didn’t, your Q2 financials need to cover the gap and explain the treatment.
Q2 2026 and Beyond
By Q2, the CAPE system is operational and claims are being filed. Companies that have filed should strongly consider recognition. Companies still preparing should disclose with specificity about their timeline and expected recovery.
Consistency Across Periods
Whatever treatment you adopt, apply it consistently. Switching from “disclosed but not recognized” in Q1 to “recognized as receivable” in Q2 requires explanation — specifically, what changed that moved the claim from contingency to receivable status. The answer is usually “we filed our claim” or “the CAPE system became operational,” both of which are defensible.
Private Company Considerations
Private companies without public reporting obligations have more flexibility in timing and treatment, but the principles are the same. Even if you don’t file with the SEC, your financial statements still need to comply with GAAP if they’re audited — and your lenders, investors, and potential acquirers will expect proper treatment.
For private companies:
- Lender reporting: If your loan agreements require GAAP-compliant financial statements, the IEEPA refund must be addressed
- M&A context: If you’re contemplating a sale, the refund is an asset that should be reflected on the balance sheet — either as a recognized receivable or a disclosed contingent asset. Failure to surface it could leave value on the table.
- Tax return basis: Your tax return treatment may differ from your GAAP treatment (see tax implications), but both need to be addressed
The Bottom Line
IEEPA refunds are not optional disclosure items. If your company paid material amounts in IEEPA duties, your Q2 2026 financial statements need to address the recovery — either through recognition of a receivable or through disclosure of a contingent asset. The sooner you quantify your exposure and determine your recovery path, the cleaner your books will be.
