IEEPA tariff refunds: who gets paid, how to book it, and whether it is taxable

CBP pays only the importer of record, not whoever actually bore the cost. Refunded duties are usually income or a reduction of inventory cost for tax purposes, and interest is interest income. A U.S. subsidiary whose Chinese parent advanced the duties also has a Form 5472 item.

1. Refunds go to the importer of record — confirm that is you

On February 20, 2026 the Supreme Court held that tariffs imposed under IEEPA were unlawful; on March 27 the Court of International Trade ordered refunds. CBP built CAPE (Consolidated Administration and Processing of Entries) to process them centrally. Phase 1 opened April 20 for unliquidated entries and entries within 80 days of liquidation; Phase 2 on June 29 added reconciliation-flagged entries; Phase 3, set for October 6, handles only finally liquidated entries where the importer is a plaintiff in the CIT litigation and the entries fall within a court reliquidation order. In its mid-September filing with the court, CBP reported roughly 286,000 declarations covering about 27.2 million entry lines, about $134.7 billion in refunds accepted and about $122 billion (including interest) certified and transmitted.

Every dollar goes to one party: the importer of record (IOR) on the entry. That has nothing to do with who ultimately bore the cost. A company that imported under a forwarder's or broker's IOR number, sold DDP to U.S. customers, or had its Chinese parent advance the duties will not see the money arrive on its own. CBP refunds only to the IOR's ACH account; refunds without banking information on file are held — over 20,000 of them, about $1.3 billion, per the same report.

• Check the IOR on every entry summary (CBP Form 7501)
• Confirm the IOR has a valid ACH refund account in ACE
• Only IEEPA duties (HTS 9903.01 and 9903.02) are refunded; Section 232 and 301 duties are not
• If the IOR is a forwarder or broker, read the contract for a pass-through clause

2. A tariff refund is not a windfall: most of it is taxable

The instinctive reaction is that money the company paid itself cannot be taxable when it comes back. The tax benefit rule (26 U.S.C. §111) says otherwise: an amount deducted in a prior year is income when recovered, except to the extent the deduction did not reduce tax. Duties normally entered landed cost and were deducted through cost of goods sold once the goods were sold, so the refund is taxable when it comes back. Only the portion whose original deduction produced no tax benefit — for example, in a loss year — may be excluded.

Under the accrual method, income is recognized when the all-events test is met — the right is fixed and the amount can be determined with reasonable accuracy — not when cash lands. In practice, CBP's acceptance of the CAPE declaration and reliquidation of the entry with a confirmed amount generally satisfies that test. If 2026 entries were accepted in CAPE this year, the company must assess 2026 income even if the wire arrives in January 2027. Companies with audited financial statements also cannot recognize the income for tax later than in those statements.

• Goods already sold: income (or a reduction of current COGS, consistently with book policy)
• Goods on hand: reduce inventory cost; the profit effect comes when the goods sell
• Interest: interest income, separate from product cost
• Prior-year losses: test year by year whether the original duty deduction produced a benefit

3. Bookkeeping: split sold versus on hand, then principal versus interest

Before posting anything, build a map: which refund relates to which entry, which SKUs were on that entry, how much of each has been sold as of the recognition date and how much remains in inventory. Duties capitalized into inventory under Section 263A should be reversed out of inventory for the on-hand portion rather than taken straight to profit; only the sold portion belongs in the current period. Booking the whole amount as "other income" distorts both gross margin and inventory value, and next year's return and audit will have to unwind it.

Interest under 19 CFR 24.36 accrues from the date the duties were deposited to the date of reliquidation and is paid together with the principal. For tax purposes it is interest income, not a reduction of product cost, and it must be separated using CBP's refund detail. The CAPE refund detail in ACE lists principal and interest separately — post from that, not by backing into the wire total.

• Build the entry → SKU → sold/on-hand map
• On-hand portion: debit cash, credit inventory; sold portion: credit income or COGS
• Interest portion: credit interest income
• Keep the CAPE declaration, CBP acceptance, reliquidation notice and ACH receipt as support

4. Parent advances, forwarder collections and DDP customers

The most common pattern for a Chinese-owned U.S. subsidiary is that the parent paid the duties — either directly to the broker or by funding the subsidiary before it paid. When the refund lands at the subsidiary, is it repaid to the parent, treated as additional capital, or netted against the intercompany balance? Each answer has a different tax result, and each is a related-party transaction that the Form 5472 instructions require the subsidiary to report on its annual return; the penalty starts at $25,000 per missed form.

The second pattern is a forwarder or broker acting as IOR. The refund lands with the forwarder; whether it flows back depends on the contract and the forwarder's cooperation. When it does, the amount is still handled under sections 2 and 3 above — it is not an intercompany receivable simply because the forwarder paid it. The third pattern is the DDP customer: the U.S. buyer paid a duty-inclusive price, the seller as IOR receives the refund, and the buyer may ask for a share. If the contract is silent, now is the negotiation, and its outcome decides how much of the refund stays in the income statement.

• Parent advance: characterize it first (loan, capital or intercompany balance), then route the refund, and report on Form 5472
• Forwarder as IOR: obtain the allocation detail and reconcile entry by entry
• DDP customers: check the price clause and assess whether a rebate is owed
• Related-party pricing: if intercompany prices were adjusted to absorb tariffs, assess whether the refund must flow back under the agreement

5. What to do before October 6

Phase 3 opens only for finally liquidated entries of importers that are plaintiffs in the CIT litigation and fall within a court reliquidation order, and CBP requires that the importer's IOR number was on file by July 30. Non-plaintiffs currently have no automatic path for finally liquidated entries; CBP's position is that it cannot refund them without a court order, and that position is on appeal. The task now is not to wait but to sort every entry into unliquidated, liquidated within 80 days, or finally liquidated — the first two go through Phases 1 and 2, the third needs a litigation check.

For finance, the larger task is to settle the questions in sections 2 to 4 early: the refund may be 2026 income, so fourth-quarter estimated tax should reflect it; the parent advance must be characterized before year-end; any customer rebate should be agreed within the year. A refund is good news, but an unprepared refund makes the 2026 return harder than any year before it.

• Classify all entries by liquidation status and confirm the refund path for each
• Verify IOR information and the ACH account in ACE
• Build the refund into fourth-quarter estimated tax
• Settle parent advances, forwarder allocations and customer rebates before year-end