Supreme Court overturns IEEPA tariffs

KPMG highlights financial statement considerations following the February 20, 2026 Supreme Court ruling that overturned IEEPA tariffs.

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Applicability

Companies affected by IEEPA tariffs

Background

The International Emergency Economic Powers Act (IEEPA) authorizes the US President to regulate certain economic transactions during a national emergency. Although historically used for sanctions, it has recently been invoked to impose tariffs – a use that was challenged in court as exceeding statutory and executive authority.

On February 20, 2026, a US Supreme Court ruling overturned the tariffs imposed under IEEPA.

The ruling did not address refunds and, as such, there is uncertainty about whether all companies who paid IEEPA tariffs may be entitled to refunds. On March 4, 2026, the Court of International Trade (CIT) ordered the Trump administration to begin refunding all tariffs imposed under IEEPA. The Administration is working on a refund mechanism as ordered by the CIT but has not waived its right to appeal the CIT order to limit the scope of refunds. Some arguments may include the CIT lacking authority to require universal refunds, interest, or reopen liquidated entries.

Subsequent events considerations for financial statements unissued as of February 20, 2026

For companies that have not yet issued their financial statements as of February 20, 2026, the Supreme Court ruling is a subsequent event evaluated under ASC 855.

Reminder of ASC 855 requirements

ASC 855 requires companies to evaluate events that occur after the balance sheet date but before financial statements are issued (or available to be issued) to determine whether those events require recognition or disclosure.

ASC 855 distinguishes between two categories of subsequent events:

Recognized (Type 1) subsequent events provide additional evidence of conditions that existed at the balance sheet date and require adjustment to the financial statements.
Nonrecognized (Type 2) subsequent events relate to conditions that arose after the balance sheet date and do not require adjustment, but disclosure is required if the event is material and omission would be misleading.

Determining whether a subsequent event is Type 1 or Type 2 requires judgment.

Financial statement disclosure implications

We believe it is acceptable to treat the Supreme Court’s decision as a nonrecognized (Type 2) subsequent event in financial statements that have not yet been issued as of February 20, 2026.

If the Supreme Court’s ruling is expected to have a material effect on the financial statements when recognized or not disclosing it would otherwise result in the omission of material information to financial statement users, companies disclose the nature of the decision and its expected implications. Such disclosures may address, for example, the potential effect on existing and future tariffs exposure, supply chain arrangements, liquidity, or ongoing or anticipated legal proceedings. Companies estimate the financial effects based on information known as of the date the financial statements are issued (or available to be issued) and are careful to avoid speculative or overly forward‑looking statements.

As with all subsequent events analyses, conclusions are grounded in company‑specific facts and circumstances. Companies also consider whether related disclosures are required under other US GAAP topics, such as ASC 275 on risks and uncertainties, ASC 205-40 on going concern or ASC 450 on contingencies.

Accounting for potential tariff refunds

Recognition and measurement of refunds

We believe it is appropriate to apply a loss recovery model to account for potential refunds from the government.

Alternatively, we believe it is acceptable to apply a gain contingency model to account for refunds.

Under the loss recovery model, the amount to be recognized is limited to the amount of the loss incurred for which recovery is probable. Probable is a high threshold, as defined in ASC 450 (contingencies) and there is a rebuttable presumption that realization of a claim is not probable when the claim is subject to dispute. Subsequent events may also be relevant in assessing whether recovery was probable as of the reporting date. Companies should monitor developments closely and significant judgment may be required in evaluating whether and when the probable threshold will be met. Although the Administration is working on a refund mechanism as ordered by the CIT, it has not waived its right to appeal the CIT order to limit the scope of refunds. The Administration may dispute refunds for some claims which may affect a company’s probability assessment.

Other accounting considerations

The loss recovery model does not apply to other estimates in the financial statements where anticipated tariff changes are considered (e.g. impairment assessments, estimates to complete an overtime customer performance obligation).

Companies evaluate whether their contracts with customers give rise to an obligation to refund tariff costs that were passed through to customers. If refunds are not contractually required but are expected to be provided to customers, companies evaluate whether a contract modification or price concession model is appropriate.

Companies that are not importers but paid increased prices due to tariffs evaluate whether they have a contractual refund right or need a contract modification to obtain a refund.

Accounting for sale of refund claims

Recognition and measurement of sale of refund claims

Companies may obtain cash from a third party in exchange for its rights to IEEPA tariff refunds. The company, being the only entity that can obtain a refund from the government, accounts for the potential refund from the government separately from the cash received from the third party.

Recognition of the refund right will be accounted for under either the loss recovery or gain contingency model.

Companies that enter transactions to sell their rights to future refunds from the government will generally account for those transactions as debt.

Cash received from a third party for those rights is recognized as debt with any accretion of the initial amount recorded as interest expense.

Companies that do not want to apply derivative accounting for these transactions may need to early adopt the recent derivatives scope refinements guidance.

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Valerie Boissou

Partner, Audit, DPP - Accounting, KPMG US

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Meredith Canady

Partner, Dept. of Professional Practice, KPMG US

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Valerie Boissou

Partner, Audit, DPP - Accounting, KPMG US

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Meredith Canady

Partner, Dept. of Professional Practice, KPMG US

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Relevant Results

Applicability

Background

Subsequent events considerations for financial statements unissued as of February 20, 2026

Accounting for potential tariff refunds

Accounting for sale of refund claims

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