Is a Tariff Refund Taxable? IEEPA Refunds for Sellers

Where things stand, as of October 2026

The ruling. On February 20, 2026, the Supreme Court held that the International Emergency Economic Powers Act (IEEPA) does not authorize the President to impose tariffs (Learning Resources, Inc. v. Trump, No. 24-1287). The majority opinion did not set up a refund process.
The refund process. CBP built CAPE (Consolidated Administration and Processing of Entries) in ACE. Phase 1 launched April 20, 2026 (CSMS #68315804). CBP added entries flagged for reconciliation effective June 29, 2026, per its IEEPA refund page.
Court-ordered refunds. CBP published a notice on October 5, 2026 about a worksheet for refunds ordered by the U.S. Court of International Trade (FR Doc. 2026-20228).
Not automatic. The importer of record or its customs broker must file. Refunds include interest and are paid by ACH.

What is unsettled. Refunds for older, finally liquidated entries are still being worked out in CBP’s later phases and in court. The IRS has not issued guidance specific to tariff refunds. The tax treatment below applies long-standing general rules. Check CBP’s page for the current phase before you count on timing.

How the tax treatment works

The answer depends on where the duty went when you paid it. Tariffs are part of inventory cost (see should tariffs be included in COGS). So the duty either already reached COGS, or it is still in inventory.

Goods already sold in a prior year. You deducted the duty through COGS. Under the tax benefit rule, a recovery of an amount deducted earlier is income, except to the extent the earlier deduction did not reduce your tax (IRC § 111). You generally report it in the year of recovery, not by amending the earlier return.
Goods still in inventory. The duty has not been deducted yet. The refund generally reduces the cost of those units, so COGS is lower when they sell.
Goods sold in the same year you receive the refund. The refund generally reduces that year’s COGS.
Interest. CBP adds interest under 19 U.S.C. § 1505. Interest is taxable as ordinary income (IRC § 61(a)).

Illustrative example. A seller paid $10,000 of IEEPA duty in 2025. By December 31, 2025, 80% of those units had sold. In 2026 the seller receives a $10,000 duty refund plus $400 interest. Under the general rules, about $8,000 is income for the recovery of duty already deducted, $2,000 reduces the cost of the units still on hand, and $400 is interest income. Accrual-method timing and state rules can change the answer.

Recording the refund in your books

Get the detail. Pull the refund by entry number from ACE or your broker. Separate duty and interest.
Match entries to shipments. Tie each entry to the lot and SKUs it covered in your landed cost records.
Split sold vs on hand. Use your inventory records to see how much of each lot was sold, and in which year.
Post three pieces. Recovery of duty on goods sold in prior years, reduction of inventory cost for goods on hand, and interest income.
Accrual sellers: check timing. Decide with your CPA when the right to the refund became fixed. It may belong in a year before the cash arrives.
Keep the file. Save the CAPE Declaration, CBP refund notices and your allocation worksheet.

If you passed tariff surcharges to customers, a refund does not change the sales you already recorded. Whether you owe customers anything is a contract and consumer-law question, not a tax one.

How it works with us

Best for: Online brands that imported goods in 2025 or early 2026, paid IEEPA duty as importer of record and expect or received a CBP refund.

Free initial consultation. Tell us who your importer of record was and what refunds you expect.
Fees quoted upfront, in writing. Transparent, fair fees in an engagement letter before work starts.
Allocation. We match refund entries to shipments and split them into sold, on-hand and interest.
Books and return. We post the entries and carry them to your business tax return.
Planning. We model the effect on estimates with tax planning so the refund does not surprise you at filing time.

We work with your customs broker on the CAPE filing itself. We do not file in ACE.

Where the duty went → tax treatment of the refund

Where the duty went	General tax treatment of the refund	What to watch
Goods sold in a prior year (duty deducted through COGS)	Income in the year recovered, to the extent the deduction reduced tax (IRC § 111).	Accrual-method timing may pull it into an earlier year than the cash.
Goods still in inventory	Reduces the cost of those units. Lower COGS when they sell.	Needs per-lot landed cost records.
Goods sold in the same year as the refund	Reduces that year’s COGS.	Same lot tracking.
Interest paid by CBP (19 U.S.C. § 1505)	Ordinary interest income.	Separate it from the duty in the refund detail.
Supplier or forwarder was importer of record (DDP)	No CBP refund to you. Any amount your supplier passes back generally reduces your purchase cost.	Depends on your contract. CBP pays only the importer of record.
IRS guidance specific to tariff refunds	None issued as of October 2026.	Recheck before filing. Rules above are general principles.

Expert CPAs. Personal attention.

Expecting a CBP tariff refund? Bring your refund detail and landed cost records to a free initial consultation and we’ll walk through how it lands in your books and return.

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Frequently asked questions

Usually, to the extent the duty already lowered your taxable income. As of October 2026 the IRS has not issued guidance specific to IEEPA tariff refunds, so the general rules apply. Duty on goods you already sold and deducted through COGS generally comes back as income. Duty still sitting in inventory generally reduces inventory cost instead.

It depends on your accounting method and facts. A cash-method business generally reports income when it receives the refund. An accrual-method business may have to report it when its right to the refund is fixed and the amount can be determined with reasonable accuracy, which can be before the cash arrives. Talk to your CPA before you close the year.

Generally no. The usual approach for a recovery of an amount deducted in an earlier year is to report it in the year of recovery, not to amend the earlier return. Your facts may differ, so review it with your CPA.

Yes. CBP includes interest under 19 U.S.C. § 1505 in the refund. Interest is ordinary income under IRC § 61(a). It is not a reduction of COGS or inventory cost. Ask your broker or check ACE for the split between duty and interest.

Through CBP’s CAPE function in ACE (Automated Commercial Environment), launched April 20, 2026 (CSMS #68315804). Only the importer of record or the licensed customs broker that filed the entries can file a CAPE Declaration. Refunds are paid by ACH, so refund bank details must be in ACE. CBP says it charges no fee for refunds.

CBP pays the importer of record. If your supplier shipped DDP and was the importer of record, you have no direct claim with CBP. Any money your supplier passes back to you is a matter of your contract with them, and it is generally treated as a reduction in what you paid for the goods rather than a sale.

Not from this ruling. Learning Resources, Inc. v. Trump (Feb. 20, 2026) held only that IEEPA does not authorize tariffs. Other tariff programs were not part of that decision.

Split it three ways. Duty on goods already sold: other income (or a COGS credit in management reports, with a clear label). Duty on goods still on hand: a credit to inventory for those lots. Interest: interest income. Keep the CBP refund detail by entry so each piece ties back to a shipment.

Sources

General information as of October 18, 2026. Tax rules change; talk to a CPA about your situation.

Is a tariff refund taxable? How to record an IEEPA refund