6 minute read | February.21.2026
On February 20, 2026, the United States Supreme Court invalidated tariffs imposed by President Trump under the International Emergency Economic Powers Act (IEEPA), but did not resolve whether or how refunds would be made available to importers.
The matter was remanded to the Court of International Trade (CIT), which issued an order on March 6 clarifying that importers previously subject to IEEPA tariffs may benefit from the Court’s decision and directing Customs and Border Protection (CBP) to issue refunds for certain unliquidated entries. The matter continues to be adjudicated by the CIT, with regular developments in that court.
In the meantime, parties to existing secured credit facilities should consider the following implications for their transactions.
Borrowers will need to evaluate the accounting ramifications of ongoing developments related to IEEPA tariff refunds with their accountants. According to developing accounting guidance, there may be more than one acceptable approach to recognizing and measuring tariff refunds.
One way may be by analogy to the loss recovery principles of FASB ASC 410-30, under which refunds would constitute recoveries limited to the amount of tariff costs that were previously recognized. Tariff recoveries would become measurable and recognizable when they are “probable,” or “likely to occur.” If a refund claim is under dispute or subject to litigation, a rebuttable presumption exists that recovery is not probable.
Another is through the gain contingency model of FASB ASC 450, under which a tariff refund is a contingent gain recognized when it is realized (i.e., when a company receives cash or claims to cash without expectation of repayment) or realizable (i.e., when assets are convertible to known amounts of cash or cash claims).
Both models may create a timing distortion, in which three quarters of tariff expense would be effectively reversed and recognized as gain in a single quarter.
Many credit agreements contain variable interest rate margins based on leverage ratios or other financial metrics. If EBITDA is permitted to increase by the one-time impact of tariff refunds, interest rate margins might decline for the current quarter and the immediately succeeding quarters.
For borrowers close to a financial covenant default, a one-time surge in EBITDA from recognizing the tariff refund could buy them one or more fiscal quarters of further grace. For borrowers who have already breached a financial covenant that would not have been breached but for the tariffs, recognition of the refund in the current quarter will likely not retroactively undo the prior quarter’s default.
For borrowers that have covenant baskets or exceptions that are subject to incurrence-based financial tests, a one-time surge in EBITDA could result in unexpected capacity to use such baskets or exceptions. Borrowers and lenders should examine their credit agreements for any such ramifications.
Many traditional credit agreements still require borrowers to use the proceeds of “extraordinary receipts” to pay down debt. “Extraordinary receipts” is a term that is typically defined broadly and often expressly includes tax refunds. Borrowers and lenders should check the “mandatory prepayment” section of their credit agreements to see whether the cash proceeds of the refunds will be required to prepay loans.
Even before the Court’s decision, a market had developed for companies to sell their rights to future tax refunds to investors. The price for those claims has been rising and borrowers may be tempted to sell. Most credit agreements will permit the sale of the tax claims under various “baskets,” including for sales of assets made for fair market value and for a minimum percentage in cash (often 75%). Credit agreements typically provide that borrowers must use the proceeds of large asset sales to pay down debt, but provide an exception if the borrower reinvests the proceeds in other assets (which borrowers almost invariably do). The growing prospect of refunds may therefore provide borrowers (particularly distressed ones) with a potential infusion of liquidity through the discounted sale of their refund claims.
We encourage lenders to communicate with borrowers about the various considerations set forth in this alert to stay ahead of potential issues, and borrowers to evaluate the opportunities provided to them by the Court’s decision with their accountants and attorneys.