Supreme Court Strikes Down IEEPA Tariffs, Opening a $175 Billion Refund Question

The Supreme Court ruled on February 20, 2026, that the International Emergency Economic Powers Act does not give the president authority to impose tariffs, striking down two rounds of duties imposed since 2025 and opening the door to refund claims that Penn Wharton Budget Model estimates could reach $175 billion. For business owners who import goods, the decision is not the end of the story. It resolves the legal question and leaves the refund mechanics, and the tax treatment of any money that comes back, still to be worked out.

What the Court decided

In a 6-3 decision written by Chief Justice Roberts, the Court held that IEEPA's authority to "regulate . . . importation" does not include the power to impose tariffs, reasoning that the power to tax imports is a branch of the taxing power the Constitution reserves to Congress, according to Penn Wharton's summary of the opinion. The ruling affirmed a lower appellate decision that had already invalidated two sets of IEEPA tariffs: duties on Canada, Mexico and China tied to a declared emergency over illicit drugs, and broader duties on most other imports tied to a declared emergency over the trade deficit, Penn Wharton reported.

Who is affected

The ruling reaches any business that paid IEEPA tariffs on imported goods since 2025. Penn Wharton put total IEEPA tariff collections between January 2025 and January 2026 at roughly $164.7 billion, or about half of all customs duties collected in that period. Holland & Knight noted that, absent a replacement revenue source, future tariff collections are projected to fall by roughly half going forward. The decision does not affect tariffs imposed under other statutes, such as Section 301 or Section 232, which rest on different legal authority.

The refund mechanics, still unsettled

Neither the opinion nor the guidance issued since addresses how refunds will actually be paid, according to Holland & Knight, which noted "the mechanics are unresolved" and that the Court did not direct how refunds should occur. Skadden described two practical paths for importers: for entries not yet finally liquidated, a post-summary correction filed with Customs and Border Protection can remove the IEEPA duties before liquidation; for entries already liquidated, importers can file an administrative protest with CBP or pursue a claim at the Court of International Trade, which has authority to reliquidate entries and order refunds. General customs practice gives importers 180 days after an entry is liquidated to file a protest. Skadden cautioned that the government may contest some refund claims in court, a process that "could take years to complete," and recommended importers preserve entry documentation and duty-payment records while monitoring forthcoming CBP and Treasury guidance.

The after-tax math

A refund is not simply money back with no tax consequence. Under the long-standing tax benefit rule, a business that deducted the tariffs it paid — typically as part of the cost of goods sold — must include a later refund in taxable income to the extent the earlier deduction reduced its tax, according to CBIZ. The treatment splits depending on what happened to the goods.

Example, with round numbers: an importer paid $2,500,000 in IEEPA tariffs in 2025. Of that, $2,000,000 was tied to goods the company had already sold by year-end, which had increased 2025 cost of goods sold and produced a tax benefit that year. The remaining $500,000 was tied to goods still sitting in inventory on December 31, 2025. When the $2,500,000 refund arrives in 2026, the company includes the $2,000,000 tied to goods already sold in 2026 taxable income, since that portion recovers a deduction it already benefited from. The $500,000 tied to unsold inventory is instead treated as a reduction to the company's opening 2026 inventory cost, working its way into income later as that inventory is sold, rather than as an immediate lump sum.

What to watch

The Court of International Trade is expected to set up a case-management process for the wave of refund claims in the coming weeks and months, per Skadden, and CBP guidance on filing procedures had not yet been issued as of the ruling. Importers who shifted tariff costs to customers or suppliers through contract pricing also face a separate set of disputes over who is entitled to the refund once it is paid, a question the ruling itself does not resolve.

After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.