The Trump administration is in the process of refunding tens of billions of dollars in tariffs to importers in the wake of a
The refunds are coming from U.S. Customs and Border Protection after the administration
"Our clients have indicated they've received it, or received most of it," said Mark Baran, managing director in the national tax office at CBIZ, a Top 10 Firm based in Cleveland. "This is for those that have filed in Phase One of the three phases."
Phase Two also recently got underway at the end of June. "I've seen 63% to 70% of the total claims for these refunds, $166 billion, are in Phase One. That's probably about $100 billion or so coming from Phase One, and $23 billion has already been issued."
Some estimates are even higher, upwards of $71 billion (including interest) paid out as of June 29, according to the
Baran has been involved in several of the refund programs as well as the ongoing appeals. "There's an appeal of the order that the Board of International Trade issued, and in that appeal, the belief is that those claimants that have filed a claim or a declaration for a refund are in a liquidated status or close to a final liquidation," he said. "The administration is claiming that they don't want to issue refunds unless they file a protest litigation or separate lawsuit. For those claims that are in that category, there are going to be delays now. That appeal is going to the federal circuit here in D.C., and that could take several months to be resolved."
While the Supreme Court ruled that Trump's ability to impose tariffs under the International Emergency Economic Powers Act of 1977 was unconstitutional, the administration has also been trying to impose tariffs under a separate authority known as Section 301 of the Trade Act of 1974 and has been carrying out investigations of allegations of forced labor being used in other countries to make goods. This week, a
"Those are the new tariffs that are coming up, but this relates to unfair trade practices, so they talk about forced labor and how it's affecting U.S. businesses," said Baran. "These new 301 tariffs for forced labor are going to be much more difficult to challenge and win."
Other firms like Sax in Parsippany, New Jersey, have also been helping their clients file claims in the months since the Supreme Court decision.
"We're going to continue to encourage people to apply for the refunds through either their importer of record or their customs broker," said Joshua Chananie, a partner-in-charge of the manufacturing and distribution practice at Sax LLP in Parsippany, New Jersey. "They're the ones with all the information to complete the filing within the CAPE system, but it seems to be turning over very quickly. The reason why they may not get processed so fast is if there's any other taxes that could be owed, or they're missing their ACH information. You're no longer going to get checks back. Everything gets wired from the government now. Absent there being missing information, all things I've seen is the money starting to flow, even to the small businesses. Originally I was concerned that with the early onset, it would be the really big companies that would eat up the majority of the refunds."
In May, one of his distributor clients received a check for nearly $1 million. "You would think it's a relatively smaller claim in the grand scheme of things," said Chananie. "But they got paid a percentage of what they had filed for, and now they have to go through their own internal process of determining whether or not they really get to keep that money, or whether that money has to go back through. That will be the next wave of it."
He compared it to the Paycheck Protection Program and Employee Retention Credits in the wake of the pandemic. "Similar to the PPP and the ERC loans, they are actually paying folks with interest," said Chananie. "It's coming from the Department of the Treasury. It's almost treated similarly to a return of taxes."
Accounting treatment
Accountants will need to advise their customers on the proper treatment of the refunds.
"We've seen some of the bigger car companies pull forward the refund and actually start accruing it at the prior quarter's end to show revenue," said Chananie. "Originally I would say that's aggressive, but now that they're starting to demonstrate that the system is working and the money is actually starting to be returned, I think you could certainly take that position."
Public and private companies may take different approaches. "For a public company that reports back to stockholders, I think it's more of a positive to show higher income as it relates to offsetting other costs," said Chananie. "It gives it a little bit of a softer blow, because all people hear about is the increase in the cost of vehicles, so to have some potential revenue on the back end, maybe the end consumer will get more optimistic about the price of cars returning to normal."
Smaller businesses will have options as well. "For the small to medium size privately owned businesses, I still think it's acceptable to treat it on a cash basis," said Chananie. "You could certainly communicate to the outside world, whether it's in the financial statements or in the monthly reporting — however you do it — that the refund claims have been made, and then ultimately, when they're in receipt of the money, they're able to either recognize it as revenue if the money is going to stay inhouse, where they'll recognize a portion of it as revenue from what they'll keep, and a liability as to what would potentially go back to the customer. They're getting paid with interest. The interest is most likely going to be taxable to them, but there's a good argument to make that a portion of that belongs to the customer as well. There's a wait and see approach with that as well, and how much the customer pushes."
