Accounting implications of SCOTUS tariffs ruling

During 2025 and early 2026, U.S. Customs and Border Protection (USCBP) collected tariffs authorized by President Trump via executive order under the legal authority of the International Emergency Economic Powers Act (IEEPA) on many goods imported into the United States. These tariffs included many of the “reciprocal” tariffs enacted on “Liberation Day” in April of 2025 and the fentanyl-related tariffs imposed on Canada, China, and Mexico.

However, on February 20, 2026, the Supreme Court of the United States (SCOTUS) ruled in a 6-3 decision that IEEPA did not authorize the imposition of such tariffs by the President. The ruling did not decide whether or how tariffs previously collected by USCBP must be refunded and did not impact tariffs authorized under other legal authorities.

This Snapshot summarizes certain financial reporting considerations related to the SCOTUS ruling regarding the IEEPA tariffs.

Accounting considerations

When determining the accounting implications of the SCOTUS ruling, it is important to first consider which accounting guidance applies for recognizing and derecognizing tariff liabilities. Tariffs imposed by executive order and actively enforced by USCBP are, in our view, legal obligations in the scope of ASC 405 and are not contingent obligations in the scope of ASC 450-20. Accordingly, tariff obligations are recognized when they are legally owed and are derecognized when they are either paid or the reporting entity is otherwise legally released from the obligation to pay them.

Subsequent events

Reporting entities that have not issued financial statements with reporting periods ending prior to the SCOTUS ruling will need to consider whether the guidance on subsequent events in ASC 855 applies and to determine whether the ruling represents a Type I (recognized) or Type II (nonrecognized) subsequent event.

As discussed above, tariffs are, in our view, legal obligations, and, consistent with the guidance in ASC 740, changes in laws and regulations are generally recognized in the period when the changes are enacted, including changes enacted by judicial rulings. Accordingly, we believe a reporting entity may reasonably conclude that the SCOTUS ruling is a Type II subsequent event that does not require recognition in unissued financial statements with reporting dates prior to the ruling.

However, ASC 855 does require disclosure of both (1) the nature of the event, and (2) an estimate of its financial effect (or a statement that no estimate can be made) if the absence of such disclosure would cause the financial statements to be misleading.

Recognition of possible IEEPA tariff refunds

The SCOTUS ruling did not decide whether or how tariffs previously collected by USCBP must be refunded. While subsequent lower court decisions have indicated that refunds may be due to entities that previously paid IEEPA tariffs, no administrative process to identify and pay refunds has yet been established. Rather, certain companies have sued the government for refunds either individually or collectively with other entities.

We believe entities may reasonably apply one of two approaches when determining whether they should recognize an asset related to future refunds of previously paid IEEPA tariffs: the loss recovery model or the contingent gain model.

Loss recovery model

While the guidance in ASC 410-30 only directly addresses expected recoveries of losses related to environmental obligations, it is often applied by analogy to other situations in which loss recoveries are expected (such as losses on recognized assets covered by casualty insurance). 

A reporting entity may have previously recognized costs related to IEEPA tariffs. We believe reporting entities in such circumstances may reasonably apply the guidance in ASC 410-30 on loss recoveries by analogy.

Under the guidance in ASC 410-30, a recovery may only be recognized when receipt of the recovery is probable. “Probable” is defined in the ASC Master Glossary as “likely to occur.”

Reporting entities should carefully consider all known facts and circumstances, including entity-specific and external matters, when evaluating whether a recovery of previously paid IEEPA tariffs is probable. In particular, entities should consider the government’s current posture toward paying refunds, whether a clear process for obtaining refunds has been established, the outcome of court cases or administrative proceedings with similar facts and circumstances, and whether the reporting entity intends to pursue the collection of refunds it may be owed. A high degree of uncertainty regarding these and other relevant factors might preclude a conclusion that recovery is probable.

If an entity applying the guidance in ASC 410-30 by analogy concludes that it is probable it will receive IEEPA tariff refunds, it may only recognize an asset related to an anticipated refund of tariffs to the extent of previously recognized tariff costs.

Contingent gain model

We also believe a reporting entity may reasonably apply the guidance in ASC 450-30 on gain contingencies and recognize IEEPA tariff recoveries when received.

Impact of IEEPA tariff refunds

If a reporting entity recognizes an asset related to an anticipated tariff refund or has actually received tariff refunds, it must determine the appropriate offsetting entry to recognize. The offsetting entry depends on whether the costs of the tariffs are capitalized into an asset that remains on the reporting entity’s balance sheet.

Tariff still on reporting entity’s balance sheet

Assets on which tariffs are paid are generally recognized under the cost accumulation model in ASC 805-50. If the reporting entity included the cost of the tariff in the cost accumulated into the basis of the asset, a refund of the tariff is recognized as a reduction in the cost basis of that asset. As a result, in such circumstances, the cost basis of an asset that remains on the reporting entity’s balance sheet should be reduced by the recognized tariff refund associated with that asset.

Tariff cost recognized in earnings

A reporting entity may have recognized the cost of tariffs in earnings (either by directly expensing the cost of the tariff or by reducing previously capitalized assets through, for instance, costs of sales). In such circumstances, the entity may reasonably apply one of two approaches to offsetting a recognized tariff refund in the current period: They may either reduce the previously impacted expense line in the income statement or recognize other income.

Tariff monetization transactions

A reporting entity may enter into a tariff monetization transaction whereby the entity receives payment from a funding party (the “funder”), often on a nonrecourse basis, in exchange for the funder’s right to receive some or all of the tariff refunds received by the entity. Monetization transactions are often highly structured arrangements with idiosyncratic contractual terms, and the accounting for a monetization transaction will depend on its individual terms and conditions.

While monetization transactions are often styled as the “sale” of the entity’s right to the tariff refund, entities should first consider whether the monetization transaction is a derivative in its entirety.

If an entity determines that the monetization transaction is not a derivative, accounting for monetization transactions instead as transfers of an asset might nonetheless be challenging for several reasons.

An asset for a tariff refund is not established via a contractual arrangement between the government and a tariff-paying entity. Accordingly, an asset for a tariff refund will not meet the definition of a financial asset until it is reduced to a fixed payment schedule specifically between the government and the entity, as contemplated under ASC 860-10-55-10. Instead, the asset for a tariff refund will be considered a nonfinancial asset.

Transfers of nonfinancial assets are accounted for under the guidance in ASC 610-20. We understand that entities are generally not permitted to transfer or assign their right to a tariff refund to a third party through contract alone. Under ASC 610-20, the inability to transfer or assign the asset for a tariff refund would preclude derecognition of the asset for a tariff refund. Accordingly, the entity would account for the monetization transaction as a borrowing under other guidance in U.S. GAAP, such as by analogizing to the guidance on sales of future revenue in ASC 470-20.

If the entity determines that the asset for a tariff refund is a financial asset, then the derecognition guidance in ASC 860 applies to a potential sale. If the monetization transaction does not satisfy all of the derecognition criteria in ASC 860, then the monetization transaction should be accounted for as a secured borrowing.

For tariff monetization transactions accounted for as financing transactions (that is, as debt or a secured borrowing), the initial funded amount is a contractual liability subject to the derecognition guidance in ASC 405. Under that guidance, a contractual liability cannot be extinguished until either (1) the entity pays the liability, or (2) the entity is legally released from being the primary obligor under the liability.

However, U.S. GAAP does not directly address the accounting for financing transactions structured like many tariff monetization transactions. Accordingly, entities are encouraged to consult with their accounting advisers to determine the subsequent accounting appropriate to their specific facts and circumstances.

Other matters

Reporting entities may also need to consider other potential accounting implications of the SCOTUS ruling that are not directly related to the previously paid tariffs or their potential refunds.

For more information about certain financial reporting implications of economic and fiscal policy uncertainty, see Snapshot 2025-01.

Estimates, including going concern assessments

While the SCOTUS ruling invalidated the IEEPA tariffs, President Trump quickly ordered the imposition of other tariffs at similar levels to the IEEPA tariffs under different legal authorities. Reporting entities may need to consider the impact of these new tariffs on certain estimates, including in any assessment of the reporting entity’s ability to remain a going concern under ASC 205-40.

Customer contracts

Reporting entities should carefully consider whether the SCOTUS ruling impacts its accounting for customer contracts under ASC 606 or other relevant guidance. 

An entity may have legally passed through to its customer the cost of tariffs, as allowed by in-place revenue contracts. Similar to the discussion above, we believe a reporting entity may reasonably conclude that the SCOTUS ruling is a Type II subsequent event and that any change to the rights and obligations in an entity’s revenue contracts (including the right to pass through costs of tariffs to customers) should be evaluated using the contract modification guidance in ASC 606.

When applying the contract modification guidance, entities should ensure that their revenue-related estimates (including estimating variable consideration, evaluating whether the constraint guidance must be applied, and measures of progress) are appropriately updated for the tariff impacts.

For customer contracts that do not explicitly allow entities to pass along tariff costs, an entity should carefully consider if the SCOTUS ruling, along with the entity’s statements, actions, and all other relevant facts and circumstances surrounding its customer contracts, creates an implied promise to issue customer refunds.

Even if an entity determines it does not have an implied promise to issue a customer refund, it may need to consider whether the ruling impacts its estimate of variable consideration in a contract. For example, despite not having a legal obligation, the entity may be willing to offer a price concession or rebate to its customer.