When Should a Company Reassess Its Accounting for a Tariff Refund Claim?

If your company paid IEEPA tariffs in 2025, you already know the Supreme Court's February 20, 2026 ruling created a refund entitlement. What most controllers and CFOs are still working out is the harder question: when does a specific event force you to revisit your accounting position, and what do you actually do when it does?

The top-ranking guidance explains the two available models well. What it largely skips is the reassessment obligation itself: this is not a one-time policy election you make in Q1 2026 and file away. It is an ongoing, event-driven analysis that must be repeated every time a material development occurs. This walkthrough maps each triggering event to the specific accounting consequence under each model, covers the subsequent-events dimension under ASC 855 that most articles treat as an afterthought, and addresses what happens if you want to switch models mid-stream.

For a side-by-side comparison of the two GAAP models themselves, see our companion piece on IEEPA tariff refund accounting under ASC 450 vs. ASC 410.

Key takeaway: The reassessment question is not "which model do I pick?" It is "what just happened, and does it change my probability conclusion or recognition timing under the model I already chose?"

The Two Models in 30 Seconds

Loss-recovery model (ASC 410-30 by analogy): Recognize a refund asset when recovery is "probable" under ASC 450-20, capped at tariff costs already recognized in earnings. Most practitioners interpret "probable" as roughly 75% or higher likelihood. The credit offsets the same expense line where the original tariff cost landed, typically COGS, so the benefit flows through gross margin, not other income.

Gain-contingency model (ASC 450-30): Defer recognition until the gain is realized (cash received) or realizable (amount fixed and determinable). For most Phase 1 filers, that threshold is met at the earlier of CBP's formal approval of the specific claim or actual cash receipt.

The model you chose in your first post-ruling period is not necessarily locked in forever, but switching it triggers ASC 250 and is far from painless. More on that below.

The Triggering-Event Timeline

Every event below is a mandatory reassessment checkpoint. Work through this list at each period close and each time a material development occurs between closes.

Event 1: The Supreme Court Ruling (February 20, 2026)

The 6-3 ruling that IEEPA does not authorize presidential tariff imposition is the foundational legal event. It does not, by itself, make recovery "probable" for every entry. Three factors can still block a "probable" conclusion even after the ruling:

1. Process uncertainty. If the refund process for your entries has not yet been defined, you cannot assert that compliance with an unknown process is probable. As Deloitte notes: "an entity would seemingly be unable to assert that compliance with an unknown process is probable."
2. Phase-specific legal risk. Phase 3 entries (liquidated more than 80 days ago, roughly 7% of all IEEPA tariffs paid) face a pending DOJ appeal, making "probable" very difficult to assert for that population.
3. Management intent. If management has not decided to pursue the claim, or has decided the cost-benefit does not justify it, no asset is recognized regardless of legal probability.

Accounting consequence by model:

Event 2: Fiscal Year-End Falls Before February 20, 2026 (Subsequent-Events Analysis)

This is the most technically complex reassessment scenario, and it is the one most likely to create audit pressure.

If your fiscal year ended December 31, 2025, the Supreme Court had not yet ruled when your balance sheet was struck. The ruling is a post-balance-sheet development. The accounting treatment depends entirely on which model you apply:

Loss-recovery model: Deloitte's guidance takes the position that post-period developments "represent additional evidence about the conditions that existed as of the date of the balance sheet" and that a refund asset "should be recognized as of the end of the reporting period in accordance with ASC 855." This is a Type 1 (recognized) subsequent event: you adjust the December 31, 2025 balance sheet if recovery is probable as of that date given all information available through the issuance date.

Gain-contingency model: The ruling is a Type 2 (nonrecognized) subsequent event. ASC 855-10-15-5(c) states that gain contingencies "are rarely recognized after the balance sheet date but before the financial statements are issued or are available to be issued." You do not adjust the balance sheet. You disclose the nature of the event and its estimated financial effect in the footnotes.

Audit implication: If you apply the loss-recovery model and assert a Type 1 subsequent event, your auditors will require contemporaneous documentation of the probability conclusion as of December 31, 2025, not as of the issuance date. Prepare that memo before the audit fieldwork begins.

Non-calendar fiscal years: Companies with fiscal years ending June 30, 2026 or September 30, 2026 face a different framework entirely. For them, the Supreme Court ruling, the CIT order, and the CBP phase launches all fall within the fiscal year rather than as subsequent events. The reassessment obligation is the same, but the timing of recognition is governed by the in-period probability analysis, not ASC 855.

Event 3: CBP Phase Launches and CAPE Declaration Acceptance

Each CBP phase launch is a discrete reassessment trigger because it changes the probability calculus for the entries in that phase.

• Phase 1 (declarations accepted from April 20, 2026; Treasury payments began May 2026): For entries in Phase 1, the combination of the Supreme Court ruling, the CIT order, and CBP's acceptance of Phase 1 declarations through CAPE substantially reduces process uncertainty. Companies applying the loss-recovery model should reassess probability at this point. For many Phase 1 filers, this is the first moment a "probable" conclusion becomes defensible.
• Phase 2 (CAPE declarations accepted from June 29, 2026): Same analysis as Phase 1, applied to reconciliation-flagged entries. The process is now defined; reassess.
• Phase 3 (entries liquidated more than 80 days ago): The DOJ filed its appeal of the CIT's universal injunction on June 2, 2026, contesting CBP's authority to reliquidate Phase 3 entries without individual court orders. A "probable" conclusion for Phase 3 entries is very difficult to support while the appeal is pending. Companies that recognized a Phase 3 refund asset in Q1 2026, before the DOJ appeal, must now consider whether to reverse or impair that asset.

Key takeaway: Run the probability assessment separately for each entry population. A blanket "probable" conclusion across all phases is unlikely to survive audit scrutiny given the phase-specific legal differences.

What counts as "realized or realizable" under the gain-contingency model for Phases 2 and 3? CBP's acceptance of a CAPE declaration is not the same as reliquidation or cash payment. For Phase 2 and Phase 3 entries where the process is still evolving, the "realized or realizable" threshold under ASC 450-30 is not met until CBP formally approves the specific claim or cash is received. Filing a declaration is a necessary step, not a recognition event.

Event 4: The DOJ Appeal (Filed June 2, 2026)

The DOJ's appeal of the CIT's universal injunction is a material adverse development for Phase 3 entries. It is also a reassessment trigger for any company that previously concluded "probable" recovery for Phase 3 entries based on the CIT's order.

If you previously recognized a Phase 3 refund asset: Reassess whether the "probable" threshold is still met. If the appeal creates genuine uncertainty about whether Phase 3 entries will be refunded without individual court orders, the asset may need to be reversed. This is not a change in accounting policy; it is a change in estimate under ASC 250, recognized prospectively in the period the new information becomes available.

If you have not yet recognized a Phase 3 asset: The pending appeal makes initial recognition very difficult to support. Continue footnote disclosure and monitor the appeal's progress.

Event 5: Actual Cash Receipt or Formal CBP Approval

For companies applying the gain-contingency model, this is the primary recognition event. Cash in the bank, or CBP's formal approval of the specific claim, meets the "realized or realizable" standard under ASC 450-30.

For companies applying the loss-recovery model, cash receipt is not the recognition trigger (probability was the trigger), but it does confirm the amount and eliminates any remaining estimation uncertainty.

Cash flow classification: Refund proceeds should be classified consistently with the original tariff payments, whether operating or investing. Do not default to "other income" on the income statement; the refund offsets the same line where the original cost landed.

Event 6: Each Quarterly and Annual Period Close

The reassessment obligation does not pause between major legal events. At every period close, management must:

1. Confirm that the probability conclusion for each entry population has not changed.
2. Update the estimated refund amount if new information is available.
3. Assess whether any entries previously classified as Phase 1 or Phase 2 have been reclassified or excluded.
4. Review whether drawback claims, protested entries, or other special categories have been addressed by CBP guidance. As of mid-2026, these remain unresolved.
5. Confirm that management still intends to pursue the claim. If management decides to abandon the claim after a refund asset has been recognized, the asset must be derecognized in the period that decision is made.

Capitalized Tariff Costs: A Different Recognition Path

If your tariff costs are still sitting in inventory or undepreciated fixed assets, they have not yet been recognized in earnings. The loss-recovery model's cap applies to costs already recognized in earnings, so the path is different:

• Option A: Recognize a refund asset only for tariff costs already expensed through COGS or depreciation. Leave capitalized amounts alone until they flow through earnings.
• Option B: Also recognize an asset for capitalized but unexpensed amounts, with an offsetting reduction to the carrying value of the related inventory or fixed asset.

Both options are acceptable accounting policies under EisnerAmper's guidance, but you must choose one, apply it consistently, and disclose it under ASC 235.

Companies That Passed Costs Through to Customers

If you recovered tariff costs by raising prices, the economic burden was transferred to your customers. That creates a problem for the loss-recovery model: it is difficult to characterize the refund as a "recovery of a loss" when you did not bear the economic loss. Gray Gray and Gray notes that such companies "may have no choice but to apply the gain-contingency model."

A secondary question follows: do you have a contractual or constructive obligation to pass the refund back to your customers? If so, that obligation must be assessed separately and may require recognition of a liability.

Switching Models: What ASC 250 Actually Requires

Some companies disclosed the gain-contingency model in their 2025 annual report and are now reconsidering as probability increases. Switching is possible but costly.

A change from one acceptable accounting policy to another is a voluntary change in accounting principle under ASC 250. It generally requires:

• Retrospective application to all prior periods presented.
• A preferability assessment demonstrating the new policy is preferable.
• Enhanced footnote disclosure explaining the nature of the change, the reason for it, and the cumulative effect.

This is a significant practical barrier. Before deciding to switch, weigh the audit burden of retrospective restatement against the balance sheet benefit of earlier recognition. In many cases, the better path is to maintain the gain-contingency model and recognize the asset when the "realized or realizable" threshold is met, which for Phase 1 filers may already have occurred.

The Interest Component: Separate Timing, Separate Line

Statutory interest on refund payments is not treated the same as the principal refund. Regardless of which model you apply to the tariff cost recovery, EisnerAmper confirms that interest is evaluated under the gain-contingency model (ASC 450-30), may be recognized later than the principal, and is presented as other nonoperating income, not as a COGS offset. Do not bundle interest with the principal refund in your recognition analysis.

Third-Party Monetization of Refund Rights

If you have sold your refund rights to a third-party funder for upfront cash, the accounting for the underlying CBP claim does not change. The funding arrangement and the government claim are evaluated as separate transactions. EisnerAmper describes such arrangements as "financing transactions, analogous to sales of future revenue under ASC 470, rather than derecognition events under ASC 860."

The initial cash inflow from the funder is classified as a financing activity. Subsequent payments to the funder are split between financing outflows (principal-like) and operating outflows (interest-like). Also evaluate whether derivative accounting under ASC 815 or a fair value election under ASC 825 applies to the specific contractual terms.

IFRS Divergence for Dual-Reporting Entities

IFRS reporters face a materially higher bar. Under IAS 37, a contingent asset is recognized only when the inflow of economic benefits is "virtually certain," a threshold that is higher than the "probable" standard under the ASC 410-30 loss-recovery model. PwC's guidance confirms that virtual certainty is a high threshold and whether it is met is a matter of judgment based on specific facts.

The practical result for dual reporters: U.S. GAAP statements may show a refund receivable on the balance sheet while IFRS statements show only a footnote disclosure. That divergence must be explained clearly in any reconciliation or dual-reporting package.

IAS 37 also requires disclosure of a contingent asset when an inflow of economic benefits is probable (even if not virtually certain), so IFRS reporters are not off the hook for disclosure even when recognition is premature.

Required Disclosures When Recognition Thresholds Are Not Yet Met

Not recognizing an asset does not mean not disclosing. Under ASC 235, the accounting policy selected for tariff refund recognition must be disclosed regardless of whether an asset has been recognized. For SEC filers, CohnReznick's guidance notes that MD&A, risk factors, and Item 1A disclosures in 10-Q and 10-K filings should address the potential impact of the Supreme Court's ruling and expected refund claims. A material tariff refund claim that does not yet meet the "probable" threshold for balance sheet recognition still requires MD&A disclosure of its nature and estimated financial effect. For related SEC filing best practices, see our guide on tariff disclosures in SEC filings.

The Audit Documentation Burden

Whatever conclusion management reaches, auditors will require contemporaneous evidence. For each entry population where a "probable" conclusion is asserted, prepare:

• Legal counsel's written assessment of eligibility and probability of recovery for that phase.
• Documentation of the specific CBP phase applicable to each entry and the current status of that phase's process.
• Management's written decision to pursue the claim, including a cost-benefit analysis.
• The estimated refund amount, with supporting customs entry data.
• Evidence that the probability assessment was performed on an entry-by-entry basis, not as a blanket conclusion across all entries.

For interim reporting under ASC 270, a triggering event in Q2 2026 (such as CBP accepting your Phase 1 declaration) requires reassessment in the Q2 10-Q. You cannot defer the analysis to the annual audit.

FAQ

Does the Supreme Court's February 2026 ruling alone make recovery "probable" enough to recognize a refund asset? Not automatically. The ruling establishes the legal entitlement, but three additional factors must be assessed: whether the refund process for your specific entries is sufficiently defined, whether Phase 3 legal uncertainty applies, and whether management intends to pursue the claim. The ruling is a necessary but not sufficient condition for "probable" recognition under the loss-recovery model.

Our fiscal year ended December 31, 2025. Is the Supreme Court ruling a Type 1 or Type 2 subsequent event? It depends on your model. Under the loss-recovery model, Deloitte treats it as a Type 1 (recognized) subsequent event: the ruling provides additional evidence about conditions existing at December 31, 2025, so you adjust the balance sheet if recovery is probable. Under the gain-contingency model, it is a Type 2 (nonrecognized) subsequent event: disclose the nature and estimated financial effect, but do not recognize an asset as of December 31, 2025.

Our entries are Phase 3. Can we assert "probable" recovery given the DOJ appeal? Almost certainly not while the appeal is pending. The DOJ is contesting CBP's authority to reliquidate Phase 3 entries without individual court orders, and the outcome is genuinely uncertain. If you previously recognized a Phase 3 asset before the June 2, 2026 appeal filing, reassess whether that asset should be reversed.

We originally applied the gain-contingency model. Can we switch to the loss-recovery model now? Yes, but it is a voluntary change in accounting principle under ASC 250, requiring retrospective application and a preferability assessment. The audit burden is significant. Evaluate whether the balance sheet benefit justifies the restatement work before committing.

How is the interest component of the refund treated? Separately from the principal. Interest is evaluated under the gain-contingency model (ASC 450-30) regardless of which model you use for the tariff cost recovery, may be recognized later than the principal, and is presented as other nonoperating income, not as a COGS offset.

What if management decides to abandon the claim after we have already recognized a refund asset? Derecognize the asset in the period the decision is made. Document the decision in writing and ensure the derecognition is reflected in the same period as the abandonment decision, not deferred to a later close.