The largest customs refund operation in American history has entered its final phase, returning tens of billions in unlawful IEEPA tariffs to importers, even as the government appeals the orders that made universal payback possible.
WASHINGTON, Aug. 3, 2026 – The federal government’s machinery for returning unlawfully collected tariffs reached its most consequential stage in the past several days, as US Customs and Border Protection opened the third and final phase of its refund system for duties struck down by the Supreme Court in February. Phase 3 of the Consolidated Administration and Processing of Entries system, known as CAPE, covers finally liquidated entries, the oldest and legally hardest category of tariff payments, and its launch at the end of July means every class of importer who paid duties under the International Emergency Economic Powers Act now has a live pathway to getting its money back.
The milestone arrives under a legal cloud. The Justice Department has filed notices of appeal at the US Court of Appeals for the Federal Circuit challenging the Court of International Trade orders that required universal refunds, according to client alerts from Jackson Walker and Holland and Knight. The government is not disputing that the tariffs were unlawful. It is disputing who must be paid back automatically, arguing that refunds should flow only to importers who filed timely protests or court claims rather than to every importer of record. If the Federal Circuit agrees, a substantial share of the refunds now being processed could be clawed back into litigation.
For American businesses, the stakes are enormous and concrete. CBP reported that as of May 27 it was in the process of refunding approximately 85 billion dollars in IEEPA tariffs, a figure that has continued to grow as later phases opened. Nothing on this scale has been attempted in the history of US customs administration, and the operation is testing systems, staffing and legal doctrine simultaneously.
How the tariffs fell
The refund operation is the downstream consequence of the Supreme Court’s February 20 decision in Learning Resources, Inc. v. Trump. In a 6 to 3 ruling, the Court held that IEEPA, the 1977 emergency powers statute the administration had used to impose its reciprocal, fentanyl and border tariffs, does not authorize the president to impose tariffs at all. The Court reasoned that IEEPA’s grant of authority to regulate importation during a declared emergency does not clearly include the power to tax it, invoking the major questions doctrine’s requirement that Congress speak plainly when delegating decisions of vast economic significance, as analyses by Skadden and PwC summarized at the time.
The ruling invalidated the legal foundation beneath the largest single component of the 2025 and 2026 tariff program: the across-the-board reciprocal tariffs, the fentanyl-related tariffs on China, Canada and Mexico, and the country-specific rates imposed under emergency declarations. It left untouched the tariffs resting on other statutes, including Section 232 duties on steel, aluminum, automobiles, semiconductors and pharmaceuticals, and Section 301 duties on China. The distinction has defined American trade policy ever since: the administration spent the spring rebuilding its tariff wall on those surviving authorities while the courts worked out what to do about the money already collected.
The rebuild was fast and creative. Within days of the ruling, the president invoked Section 122 of the Trade Act of 1974 to impose a temporary 15 percent balance-of-payments surcharge, up from the 10 percent initially announced, a move reported by Indian state media among others as a direct response to the court setback. Section 122 authority expires after 150 days without congressional extension, and the surcharge lapsed on schedule on July 24. In its place, the US Trade Representative concluded sixty simultaneous Section 301 investigations into trading partners’ forced labor import regimes, imposing tariffs of 10 or 12.5 percent on imports from sixty economies accounting for roughly 99 percent of US imports, effective July 24. The USTR fact sheet describes the action as responding to each economy’s failure to prohibit imports of goods made with forced labor; its practical effect was to replace the expiring surcharge with a more durable statutory foundation overnight.
The refund machine
The Court of International Trade converted the Supreme Court’s ruling into an operational mandate, ordering CBP to build a system for refunding IEEPA collections to all affected importers, not just the litigants. CBP’s answer was CAPE, a phased processing architecture that the National Retail Federation and law firm trackers have documented as it rolled out. Phase 1, active since spring, handled standard unliquidated entries, where refunds could be processed through routine post-summary corrections and reliquidations. Phase 2 launched June 29 and brought in the harder cases: reconciliation entries and entries subject to antidumping and countervailing duties, where IEEPA amounts had to be disentangled from other lawful duty streams.
Phase 3, which came online on schedule at the end of July, is the legally distinctive one. It covers finally liquidated entries, meaning entries where the statutory protest window closed and liquidation became final before the Supreme Court ruled. Under longstanding customs doctrine, final liquidation extinguishes refund claims, which is why the CIT restricted Phase 3 eligibility to importers who filed suit at the court, according to guidance summarized by Stinson and the NRF. That restriction triggered a wave of protective filings at the CIT through the spring, as importers raced to preserve access to the final phase, and it is the piece of the architecture most directly at risk in the government’s Federal Circuit appeal.
The CIT has also settled who gets the checks. Refunds flow to the entities that directly paid the duties, meaning importers of record or, where brokers paid on their behalf, the brokers, according to the court’s rulings as reported by Norton Rose Fulbright. That bright-line rule has significant commercial consequences: foreign suppliers who agreed to compensate US customers for tariff costs, and downstream purchasers who absorbed tariff surcharges in their pricing, have no direct claim on the government. Their recourse, if any, lies in their contracts, and trade lawyers report a brisk practice in disputes over which party in a supply chain is entitled to the economic benefit of a refund the importer of record receives.
Winners, waiters and the small business problem
The refund flow is landing very unevenly. Large importers with sophisticated customs departments filed protests early, preserved their claims, sued at the CIT where necessary, and in many cases have already received nine and ten figure refunds with interest calculated under the customs statute. Several publicly traded retailers and manufacturers disclosed material one-time gains in second quarter earnings attributable to IEEPA refunds, and analysts have begun treating refund receivables as a distinct balance sheet item.
Small importers are a different story. The US Chamber of Commerce published a guide and frequently asked questions document walking small businesses through the process, warning that many smaller firms do not know which of their entries carried IEEPA duties, do not have records tying duty payments to specific entry numbers, and may have paid through brokers whose own records are the only usable audit trail. The Chamber and NRF have both urged CBP to automate refunds wherever its own data suffices, rather than requiring importer-initiated claims that smaller firms may never file. Money that goes unclaimed because a five-person importer never reconciled its 2025 entry summaries is, functionally, a tariff that survived the Supreme Court.
The interest component is becoming its own story. Refunds carry interest from the date of deposit, and for duties collected at the peak rates of 2025, the accrued interest on large refunds runs well into the millions of dollars. Fiscal analysts note the irony that the tariff program, sold in part as a revenue measure, is now producing a multi-billion dollar interest expense flowing out of the Treasury on top of the principal.
An unprecedented administrative lift
Nothing in CBP’s institutional history prepared it for CAPE. The agency processes tens of millions of entry summaries a year, but its refund machinery was built for retail-scale corrections: a misclassified shipment here, a valuation dispute there, resolved through protests and reliquidations one entry at a time. The Supreme Court’s ruling required the inverse, a wholesale reversal of a revenue stream that at its peak touched a majority of all US import lines, across every port, every entry type and every category of importer from multinationals to individuals who paid duties on e-commerce parcels.
The phased design reflects hard lessons from the spring. Early refund processing produced mismatches between CBP’s automated systems and the accounting reality of complex entries, particularly where IEEPA duties, Section 301 duties and antidumping deposits were paid on the same entry line. Reconciliation entries, used by importers whose declared values are finalized months after entry, proved especially tangled, which is why they were deferred to Phase 2. Trade groups credit the agency with substantial transparency through the rollout, including regular technical bulletins to brokers, though they note that processing times for complex claims still run to months.
Customs lawyers reach for historical comparisons and find them all too small. The Harbor Maintenance Tax refunds that followed the Supreme Court’s 1998 ruling in United States v. United States Shoe Corp. returned roughly a billion dollars to exporters over several years and were considered a landmark at the time. The softwood lumber deposit returns of the 2000s ran to five billion. CAPE is two orders of magnitude beyond the largest precedent, and it is being executed while the agency simultaneously implements the replacement tariff programs Congress and the administration have layered on since February. The same entry specialists reconciling 2025 refunds are processing 2026 forced labor tariff collections, sometimes on the same commodities from the same importers.
The operation has also become an inadvertent census of American import practice. CBP officials have told industry briefings that the refund process is surfacing systemic record-keeping weaknesses among small and mid-sized importers, including widespread reliance on brokers for records the law requires importers themselves to keep. Trade compliance consultants report a surge in demand for entry management systems, and several insurers have begun offering products covering refund claim risk, a market that did not exist a year ago.
The politics of paying it back
The refund operation sits awkwardly across the political landscape because it vindicates and embarrasses both parties’ positions at once. Critics of the tariff program point to the 85 billion dollars, plus interest, as the measurable cost of governing by emergency declaration, and congressional opponents have used the refund figures to argue for statutory limits on unilateral tariff authority. Supporters of the administration counter that the speed of the Section 301 and Section 232 rebuild proves the underlying policy was always achievable lawfully, making the Supreme Court ruling a procedural correction rather than a substantive defeat.
The administration itself has treated the refunds as a closed chapter and the rebuilt tariff wall as the story. The president’s February decision to raise the interim global surcharge from 10 to 15 percent within days of the ruling signaled that the policy direction would not bend to the litigation, and the July transition from the expiring Section 122 surcharge to the forced labor Section 301 program completed the reconstruction. Importers who hoped February’s ruling meant a lower-tariff world have instead watched effective rates return to within a few points of their pre-ruling levels, with the difference that the current structure has survived its first rounds of judicial scrutiny.
For the trade bar, the episode has redrawn the map of what clients pay attention to. Protest deadlines, liquidation cycles and entry-level record keeping, long treated as back-office plumbing, decided who recovered millions and who recovered nothing. The refund operation’s clearest legacy may be a generation of importers who treat customs compliance as a balance sheet function rather than a shipping formality.
The appeal that could unwind it
The government’s Federal Circuit appeal targets the universal scope of the CIT’s refund orders. In the administration’s view, described in the Jackson Walker alert, customs law’s finality rules are jurisdictional: an importer who neither protested nor sued within the statutory windows lost its claim, Supreme Court ruling or no, and the CIT exceeded its authority by ordering refunds to non-parties. The importers’ side argues that duties collected without any statutory authority were never lawful exactions at all, making the ordinary finality framework inapplicable, and that requiring millions of importers to have individually protested a tariff the government insisted was lawful would reward the government for its own unlawful conduct.
The Federal Circuit’s answer will determine whether the refund operation is remembered as a complete remedy or a partial one. Briefing is expected through the fall, with argument likely in the winter and a decision in 2027, and further Supreme Court review is plausible whichever way the panel rules. In the meantime, the government has not sought to halt Phase 1 and Phase 2 processing, and lawyers advising importers say the practical guidance is unambiguous: claim now, document everything, and treat received refunds as potentially subject to litigation risk until the appeal resolves.
There is a second-order question the appeal does not reach but Congress eventually must: what the episode means for delegation of tariff power generally. The administration responded to the loss of IEEPA by demonstrating that Sections 232, 301, 122 and 338 can, in combination, replicate most of what IEEPA did, at the cost of more process and more paper. Legislation to narrow or ratify those authorities has been introduced in both chambers and gone nowhere. The tariff wall, rebuilt on its new foundations, is now producing average household costs that the Tax Foundation estimates at roughly 900 dollars per year, refunds notwithstanding.
What importers should do now
Customs practitioners are converging on a standard playbook. First, complete an entry-level audit of all duty payments from February 2025 through February 2026, isolating IEEPA amounts from Section 232, Section 301 and ordinary duties on each entry line, because only the IEEPA amounts are refundable. Second, confirm the liquidation status of every entry: unliquidated and recently liquidated entries flow through Phases 1 and 2, while finally liquidated entries require a CIT filing to access Phase 3, and the window for protective filings is closing as liquidations age. Third, importers who paid through brokers should obtain broker payment records now, before personnel turnover and record retention policies make reconstruction expensive.
Fourth, review supplier and customer contracts for tariff-sharing clauses before spending refund proceeds. Companies that collected tariff surcharges from customers, or received price concessions from suppliers explicitly tied to tariff costs, may face contractual or even unjust enrichment claims on refunded amounts, and several such disputes are already in arbitration. Finally, treat the current tariff landscape, not the refunded one, as the planning baseline: the Section 301 forced labor tariffs of 10 to 12.5 percent now cover essentially all US imports, sector-specific Section 232 programs continue to expand, and none of the surviving authorities is affected by the refund litigation.
Tax treatment adds a final layer of complexity. Refunded duties that were deducted or capitalized into inventory cost in 2025 generally must be recognized as income or as basis adjustments when received, and the interest component is taxable in full. Companies with fiscal years straddling the refund flow are coordinating customs, tax and audit teams to ensure the recovery lands in the right period, and accounting firms have published position papers on when a refund claim becomes recognizable as a receivable given the pending appeal. The conservative view, reflecting the Federal Circuit risk, is that finally liquidated Phase 3 claims remain contingent assets until the appeal resolves, while Phase 1 and Phase 2 refunds already received are secure absent an extraordinary clawback order.
Exporters abroad have their own version of the exercise. Foreign suppliers who cut prices during 2025 to help American customers absorb IEEPA duties are revisiting those concessions now that the duties are being returned, and some are invoking hardship or renegotiation clauses to recapture margin. Trade finance banks report that letters of credit and supply agreements written this year increasingly address tariff refund allocation explicitly, an innovation that will outlast this episode: the next disputed tariff, whatever its statute, will meet a contracting market that has learned to price legal risk on both the way in and the way out.
The IEEPA episode is settling into its historical shape: a president reached for the fastest tariff tool on the shelf, the Supreme Court took it away, and the government is now returning the money with one hand while collecting replacement tariffs with the other. For the importers cashing refund checks this week, the lesson is narrower and more practical. In American trade law, even 85 billion dollars can come back, but only to those who kept their paperwork.