Episode 20: Tackling Tariffs | Forvis Mazars US

Transcript

IRIS LAWS

Quick disclaimer as we start today's episode. Today's episode was recorded prior to the Supreme Court's issuance of their decision striking down IEEPA tariffs. However, we do have a breaking update of “Tackling Tax” available on our website and all of your podcast platforms for a quick discussion of that case decision. That podcast is titled “Breaking Update: IEEPA Tariffs Invalid. Take a look if you want more of that discussion. But for now, hope you enjoy today's episode.

With the Supreme Court back in session, tariffs are on everyone's mind. So, today we welcome back to the show our very own Michael Cornett to talk about the current state of global trade and how to tackle tariffs, which are here to stay. From your one stop for tax updates and analysis, I'm Iris. It's Tuesday, February 24th, and this is “Tackling Tax.”

Before we get started with our much anticipated guest, we start our show with the Fast Four stories that we think might be most impactful to you. So, let's jump right into these Fast Four stories of the week.

There's been some commotion in D.C. about whether the District will follow the provisions in the One Big Beautiful Bill Act, or OB3. At the moment, D.C. does not follow, or, as we call it, “decouples” from the federal law, which means that taxpayers are not able to take advantage of some provisions from OB3, like deductions from tips and overtime.

The Senate has voted to overturn this approach, so the measure is now with the president for signature. A complicating factor, however, is that this change is coming in the middle of tax season, meaning that those who have already filed may need to supersede or amend their returns to reflect the changes in OB3 at the D.C. level. Our second story focuses on the Employee Retention Credit, or the ERC, which is back in the news with the Government Accountability Office, or GAO, releasing a report that says that the ERC claims were closed as of December 31st, 2025, except for those under examination or appeal.

This comes even though there are taxpayers that have outstanding claims but have still not heard from the IRS. So, the GAO wrote that, quote, “the IRS did not provide documentation of this milestone or provide a definition of what it considers to be a closed claim.” So, the GAO did suggest that the IRS should provide updates to the public about the status of ERC claims remaining to be processed and to also provide estimates for completion, considering that would help employers anticipate possible refunds, and that could also help with business planning.

For our third story, for those investing in, developing, or purchasing clean energy credits, we've received some important guidance in relation to the new Foreign Entity of Concern rules. So, that's notice 2026-15. It was released last week and that focuses on what's called the material assistance rules, which basically limits where components of clean energy property can come from.

And that's, you know, needed to be met if you want to qualify for the clean energy tax credit. A 40% cost threshold applies for 2026 when looking at what portion of a property's direct cost can come from China, North Korea, Russia, or Iran, which are the countries identified specifically as prohibited foreign entities. It explains how taxpayers should determine whether material assistance from a prohibited foreign entity exists, including rules for calculating material assistance cost ratios and describing interim safe harbors and certification methods the Treasury Department and IRS intend to incorporate into forthcoming proposed regulations.

Especially in the world of solar energy, the majority of the world's solar manufacturing occurs in China, forcing those here in the U.S. to consider shifting our vendors, manufacturing here in the U.S., or even altering their properties specs to stay within the cost ratio limitations. So, more to come on this front. It's a lot to dig through, but some really exciting guidance. At least we have it to move forward with.

For our fourth and final story, let's chat about the CAMT. So, with a 47-to-51 vote, the Senate rejected the effort to overturn IRS notice 2025-28 guidance that expands how corporations calculate income from partnerships for purposes of the Corporate Alternative Minimum Tax, or CAMT.

Supporters of the resolution argued that the guidance weakens the CAMT and is projected by the Joint Committee on Taxation to reduce federal revenue by $10.3 billion over 10 years. At the same time, Republicans said it provides necessary simplification for a complex tax. So, with that, let's transition to the main event of the day, our Planning Insights.

On today's segment of Planning Insights, we're talking about something affecting individuals and businesses alike: tariffs. With some insightful explanations, we welcome a regular on our show, Michael Cornett. Mike is a managing director with our Washington National Tax Office and is our team's resident world traveler, talking about policy and tariffs and trade all over the globe. So, with that, Welcome to “Tackling Tax,” Mike.

MICHAEL CORNETT

Thanks, Iris. Happy to be here.

IRIS LAWS

So, let's set the stage a little bit, if we could. If we could start sort of big picture with the economy overall, and then maybe we can home in on where tariffs play into that. I saw, right, that the Congressional Budget Office, or the CBO, released their budget report, was it last week? So, what did that report show us, I guess, in relation to the deficit and spending for, you know, the near and far future?

MICHAEL CORNETT

You know, I think what it has shown us is that, you know, just in general, deficits are definitely still going to be part of the future of the United States economy. And in the near-term, they're going to be, I think, a little bit smaller than what people anticipated due to tariffs.

IRIS LAWS

Gotcha.

MICHAEL CORNETT

I certainly saw that last year where the budget deficit came in for 2025 at a smaller number than they had anticipated due to the tariff collections. But I think overall deficits are going to continue to grow as what's been speculated. As you look out to the horizon to 2036, overall public debt is going to increase by $4 trillion from what they previously estimated up to $56 trillion now.

And, you know, part of that's going to be due to, you know, as the population ages, some of these programs are going to have more and more money spent, that non-discretionary programs are just going to keep going unless they can reform them.

IRIS LAWS

Right. So, I guess when we think about tariffs, you did mention it looks like right now it's sort of shrinking the deficit. I think there was some question, right, about whether in the long run it would actually hurt trade. And so, our deficit would increase, even though we're seeing sort of a shorter-term benefit from that revenue. Is that something that the report shows, or are we sort of expecting it to be a net positive for us?

MICHAEL CORNETT

I think the report does show some benefit, I think, in these very early years on the assumptions that, you know, these tariffs are going to stay in place, or the tariffs will be there. But I think in the end, you know, it is showing the economy still growing, but the deficit growing at a faster rate and overall debt growing at a faster rate than the economy can grow, you know, even with tariffs in the picture. So, you can't close the gap enough.

IRIS LAWS

Right.

MICHAEL CORNETT

To make up for the lost spread.

IRIS LAWS

And I guess legislation-wise, you know, we saw with the OB3 bill, we saw some deficit hawks starting to think about, hey, can we really afford this? Is this something to be a priority? Is that sort of the trend you think of lawmakers? Is there going to be more sensitivity to how this will hit the deficit?

MICHAEL CORNETT

It's going to be interesting. I mean, I think, you know, OB3, while, you know, it has a lot of things to benefit the economy and hopefully increase revenue, I think, looking to OB3 and all the appropriation bills, there didn't seem to be much appetite for reining in spending, I think, is a fair way to describe it. They, even the deficit hawks probably weren't as vocal and there needs to be more vocality, I mean, if you're going to try to bring the deficit down.

IRIS LAWS

Sure. No. Agreed. Okay. Well, shifting our view a little bit more into the trade world, the USMCA, right, is the agreement between the U.S., Canada, and Mexico. It's currently in place, but it's up for review and renewal in July, I believe, of this year, right? And so, there's been a lot of conflict, I think, as we've all seen in the news between both Mexico and Canada, right, on a number of fronts. But, I saw last week the House did pass legislation to end tariffs on Canada. You know, it's not yet passed the Senate, but do you expect that to go anywhere in the Senate, or any thoughts on the future of that bill?

MICHAEL CORNETT

You know, I think in the end, it really won't go anywhere. I mean, it clearly passed the House. It’s unclear whether the Senate even take it up. And, you know, if somehow it did pass the Senate, it's clear the president will veto the bill. And then there's not enough to override his veto, in the House and the Senate, to do that. So, it really is, I think, more symbolic of where dissatisfaction with tariffs has been by both Democrats and Republicans.

IRIS LAWS

Makes sense. I guess, specific to the USMCA in general, any thoughts? I mean, we are coming up to that sort of renewal. Do we think it's gone? Do we think it's here but with changes? Do we think it's just going to be extended? Like where do you see that? I know it's just an estimation.

MICHAEL CORNETT

Well, it's going to be interesting because I mean, you know, the current version that's in place, you know, was negotiated during President Trump's first term in office. And, you know, and I think there will be some, as the review happens, it will continue in some form or fashion. Obviously, as you say, you know, there's been some back-and-forth between the U.S. and Mexico, but Mexico and the U.S. kind of seem to be more aligned there.

So, there really hasn't been as much tension, unlike Canada and the U.S., where there's definitely much more tension, you know, particularly recently, I think with the prime minister of Canada, you know, kind of saying they've reached a free trade agreement or trade deal with China. You know, that is definitely, probably ratcheted up the pressure that the U.S. is going to put on Canada as part of this agreement.

I mean, Canada obviously hasn't cooperated as much. Not to say that they haven't done some things because, clearly, I think, fentanyl trade has certainly come down. And I think it was just in the last week, there was an announcement of a large bust on fentanyl coming across the border from Canada into the United States. So, there's definitely some movement. But in the press, you know, it definitely looks a little bleak.

IRIS LAWS

Right? For sure. If you're just reading the news, it's not a great picture. But, you know, you're mentioning some agreements with Canada. I wanted to talk a little bit about some of the agreements that the U.S. has had recently in recent weeks. I think, most notably probably in the near-term, it was with Bangladesh and then Taiwan. Any, you know, comments on those two agreements?

MICHAEL CORNETT

Well, I mean, it continues the pattern. I mean, if you add those two together, you know, this administration has reached agreements with 18 different countries or groups of countries. You know, if you treat the E.U. obviously as a country for those purposes. And, you know, so I think they're all signs that people are wanting to work with the United States.

I think getting Bangladesh and Taiwan more formally is a good thing because like most agreements, it's lowering tariffs on U.S. exports into those countries. It’s still allowing the U.S. to keep tariffs on the imports, which fits within the administration's tariff policy, trade policy. So, I think you will continue to see them. People come to the table, I mean, you know, before Bangladesh and Taiwan, we had India, right, and the U.S., reach an agreement which was a much-needed agreement, you know, dropping tariff down from 50% on Indian goods down to 18%.

IRIS LAWS

It's a big deal. Yeah.

MICHAEL CORNETT

I mean, that was really major. I mean, Bangladesh obviously, you know, it set a rate, but I mean, Bangladesh is not the trading partner that India is with the United States.

IRIS LAWS

Right. Well, and I think Taiwan, right? Also, they agreed to purchase like billions of dollars of U.S. goods, too. So, it's not just the rates that we're talking about here. It's also some purchase agreements.

MICHAEL CORNETT

Yeah, you're right. All these agreements have an investment component. You're trying to increase investment either into the U.S. or buying goods from the U.S., whether it be, you know, energy products, whether it be aircraft. There's definitely a lot of commitments there. Hopefully, you know, we'll see some of those commitments start to happen here in this year and next year.

I mean, it's close to, at the end of 25 years, close to $9 trillion in commitments and pledges to invest or buy goods from the United States. So, it would definitely be great if some of that started to happen here on the U.S. economy.

IRIS LAWS

Well, great. That's kind of the backstage, right? We've talked about the economy. We've talked about some agreements, some recent things that have happened. But I think the thing that's sort of top of everyone's mind when we come to this topic is the Supreme Court case about the IEEPA of tariffs. So, for our listeners, transparently, we are recording this episode on Thursday, February 19th, and the Supreme Court has not yet issued an opinion on the IEEPA tariff case.

As discussed in our prior episodes, this case, right, focuses on whether the president's use of IEEPA for his recently implemented reciprocal and other tariffs will be upheld. We do know that the next round of opinions for the Supreme Court will come, tomorrow as we're talking, which is February 20th. But we don't know if tariffs will be a part of those decisions.

So, I was just chatting with Mike before this and he's like, hey, if I were a betting man, probably not tomorrow, but who knows, right? So, it's entirely possible just to set the stage that this does come out on the 20th, at which point we will be giving you some more information then. So, it will be a separate episode of “Tackling Tax” were that to happen.

But that being said, Mike, let's play in the world of what-ifs a little. Like, let's humor me. So, pretend, for example, that SCOTUS decides to overturn tariffs. Does this mean we're going to be just, you know, swimming in refunds? What does that mean for the normal everyday person?

MICHAEL CORNETT

Well, I think it depends, you know, if they overturn tariffs. You know, first, whether it's a retroactive thing back to the time they were put in place or whether they take an old doctrine that allows them to do it on a prospective basis so that there would be no refunds if they did it prospectively. Obviously, if they went backwards, I think, you know, then it opens the door to refunds.

The big question would then be, what is the process for getting the refund? Because it's unlikely the Supreme Court will establish any process. They'd probably kick that back to the lower courts to decide how refunds would be given. And then the administration itself is going to have to figure out the process. You know, what documentation are you going to have to provide to get that refund?

Then, you know, there's speculation out there that even if, you know, refunds are going to be given, it's probably going to take two, three years or more to actually get your refund just because of the process that the government's going to put you through, the way they're probably gonna have to prove out the refunds. And before they actually make a payment back to you.

IRIS LAWS

So, it's not like there's going to be this immediate cash windfall that people can expect regardless of what's happening. I guess, has there been precedent set for this? I mean, it seems, it's an interesting thought, right, of the, hey, we're going to overturn this and yet not give you refunds from, you know, retrospectively, has there been, has that happened before? Like has there been precedent for that? I think I've heard the term sunbursting or something like that.

MICHAEL CORNETT

Yeah. I mean, there's definitely been a few cases. And the Supreme Court decided not necessarily on the magnitude of this issue, but of, you know, undoing a law and how, say, that would be unjust and maybe inequitable to undo the law because, you know, it just wouldn't be a proper application. So, this would probably be a unique use of that doctrine here.

But I don't think it's, you know, I think it's potential just because the complexity of doing refunds because, again, you’re refunding to the importers of record. Chances are the importers of record may or may not have passed these costs on to their customers, to the people who really paid the tariffs, or the end user. So, how are they going to get the money back that they paid?

So, would it be a windfall to the importers of record? I've heard some people say that, you know, if the importers do get a refund, you're probably going to have lawsuits against the importers if they don't find a way to pay back to their customers, since the customers were the ones who actually bore the burden of the tariffs.

So, it's there, but as your original question points out, there is doctrine out there that has been used probably, you know, in 5 to 8 cases in some form or fashion, both criminally and civilly, to negate a law on a prospective basis.

IRIS LAWS

Going back to our previous discussion about different agreements and things that the U.S. has been into. I mean, there's like 18 of them, right, you said before? What happens to those agreements if all of a sudden the tariffs that we've negotiated are no longer legal? Like, do we go back to the drawing board. Did those just get overturned? Like, what does that mean?

MICHAEL CORNETT

Well, the trade agreements are a negotiation between the U.S. and the foreign government. So, I think they probably will stand. I think it's commonly viewed that if the Trump administration loses this case, tariffs are still here to stay. So, there will be other provisions that they can impose tariffs.

So, I think countries are happy to have an agreement as to how this is going to play out. And they don’t have to worry about, okay, do I unwind this and then have to start all over because now they've imposed another tariff. So, I think the common view is that trade agreements will remain in place, because they were negotiated.

IRIS LAWS

Well, very helpful. That is pretend land one. For pretend land two, let's pretend that SCOTUS decides not to overturn the tariffs, which is entirely possible. Is there an end date to the reciprocal tariffs? Are they just kind of here to stay until maybe another president comes in and decides to overturn them or what? How does that work?

MICHAEL CORNETT

Well, you know, since the power here was under IEEPA, the president is required to renew the national emergency that it was declared on; it just doesn't continue on forever. So, I think it's at least a year, if not a little longer. He has to notify Congress of a plan that the national emergency is still in existence. So, they, you know, in essence, can go away if he doesn't renew the national emergency, obviously. Then they would, just by law, go away there.

Congress itself can, you know, reject that like they've done with the House vote we talked about earlier if they have sufficient votes in both the House and Senate and enough to override a presidential veto. I would think as long as this administration kind of keeps getting their agreements, particularly with the major players, then the other stuff, you know, is just not going to be as important because they're not as big a deal.

IRIS LAWS

You mentioned if it did get overturned that they would still implement tariffs under other sections, right? That was your point. In this scenario, though, would the president see IEEPA as sort of blessed? And therefore, new tariffs would be issued under IEEPA and sort of we'd see less implementation of like 232, 301, and that kind of thing? Or what do you see there?

MICHAEL CORNETT

Yeah, it's a great question, Iris. I mean, I think that's what happens if this is blessed. I mean, you’re opening up other questions on what's a qualified national emergency or what is a national emergency? Can you just do tariffs because a president doesn't like what somebody's doing? Which, you know, you might say you've seen a little bit of that here.

The threat of tariffs with Greenland and other things here. I think it will open an interesting question whether IEEPA’s there and whether Congress then might actually work together to rewrite the IEEPA law, because that's kind of what happened. This law came into place after President Nixon had kind of imposed a 10% tariff, I think it was, and because he won the case and so they said he had the authority.

But after that, they did rewrite the law to try to put some limits under this particular power. Maybe they felt they will have to rewrite it again. 232 and 301 are kind of most common tariffs. 232 deals with national security; 301 deals with unfair trade practices.

They're kind of tried and true. They will always probably continue to be used because while they can be challenged; they're less susceptible probably to challenge. And there's a process that you have to do to impose those tariffs, but right now with IEEPA there is no process.

IRIS LAWS

Right. So, my last question in this pretend scenario, you know, one of the arguments that was made in the hearing and in the Supreme Court was whether Congress could delegate their powers to the president in this way without certain restrictions, right? The non-delegation doctrine. In this hypothetical, do you think we can extrapolate from that decision, like if they do uphold the IEEPA tariffs, can we extrapolate anything from that? Does the decision give more leeway for the president in other areas, or would that sort of be a separate discussion?

MICHAEL CORNETT

It's an interesting question. I mean, again, clearly the court has ruled that, you know, government agencies, you know, don't have as much leeway as once thought, you know, with the Loper Bright and Chevron decisions. Or Loper Bright overruling Chevron, sorry. And it would be interesting to see here because, again, the argument is the executive has different powers than the agency and, therefore, is it really going to give him more? I really don't know how they answer it.

I think it's just going to be an interesting point to see how they, what they say in their opinions on this. Whether it really opens up a new door or just makes it clear that the president and the presidential powers have that ability already. And this is just confirming that, as the executive branch, you can do it. But the agency itself that you may control can't do it.

IRIS LAWS

It's been interesting. Well, good. So, those are my pretend land. We don't have much time, but I did want to give you the opportunity, right? You work with a lot of clients on thinking through what strategies might be available to them in mitigating tariffs. If you were just to give us a quick top three, what would be your top three strategies you generally are talking to your clients about when they come to you with, hey, we're getting hit by these tariffs, we want to be planning ahead. What's sort of the most common response you give them?

MICHAEL CORNETT

I think the two top things that stand out are this doctrine called First Sale, which is, you know, probably what a lot of people are looking into, whether they can already in it or can they plan into it by creating a related party in the middle of the transaction.

Then the second one probably is trying to identify services, or what we call “unbundling the services” that may have previously been included in the customs value, pulling out those services that really shouldn't be subject to tariffs because services are not subject to tariffs.

So, I think those are probably the two biggest. And then probably the third to have given three to you is, you know, transfer pricing. You know, unrelated party situations, trying to find a way to adjust your transfer prices and not only that, comply with IRS under code section 482, but also apply with the customs valuation rules issued by CBP.

IRIS LAWS

Makes sense. So, we've got First Sale, we've got unbundling, and then we've got transfer pricing. So, good start there. But obviously, to our listeners, we've talked about this in FORsights that are posted on our website, as well as different webinars that you can relisten to as well. So, take a look at those. Or you can always reach out to Michael Cornett. His information is available on the website.

But, Mike, this has been so interesting. As usual, thank you for joining. We will for sure see you back when the SCOTUS case is issued. And so, until then, thank you so much.

MICHAEL CORNETT

Yes, thank you, Iris, for having me on. I appreciate it.

IRIS LAWS

Each episode will bring you what we call a Focused FORsight of the week, an article or a webinar that might be of interest to you. This week's Focused FORsight is an article that expands on what we've talked about today. It's titled “How to Prepare for the Tariff Supreme Court Case Decision” and goes through some options for your business as we await the SCOTUS ruling.

And that's our show. Thanks for joining. Remember to subscribe and listen in for the next episode of the podcast. Until next time.

ANNOUNCER

The information set forth in this podcast contains the analysis and conclusions of the panelists based upon his, her, or their research and analysis of industry information and legal authorities. Such analysis and conclusions should not be deemed opinions or conclusions by Forvis Mazars or the panelists as to any individual situation as situations are fact specific.

The listener should perform their own analysis and form their own conclusions regarding any specific situation. Further, the panelists’ conclusions may be revised without notice, with or without changes in industry information and legal authorities.

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