Episode 28: What’s Happening With Tariffs
Welcome back to “Tackling Tax,” where we’ll bring you the latest on tax policy and strategies—in an easy-to-understand format. Whether you’re looking to learn more about tax bills, global tax implications, or planning insights for your business, you’re in the right place.
Listen every other week for more from our guests, which include everyone from university scholars to industry professionals to the firm’s experienced leaders.
On this episode, we’ll focus on the ever-evolving topic of tariffs and what you should consider. Iris Laws and Michael Cornett with our Washington National Tax Office share their insights.
If you have any questions or need any assistance, please reach out to a professional at Forvis Mazars.
Transcript
IRIS LAWS
On this episode, we're focusing on our favorite topic: Tariffs. We're going to have a causal conversation with a friend of the podcast, Michael Cornett, to talk about everything that's going on in this space now and what you should be doing. From your one stop for tax updates and analysis, I'm Iris.
DEVIN TENNEY
And I'm Devin.
IRIS LAWS
It's Tuesday, June 16, and this is “Tackling Tax.”
DEVIN TENNEY
Well Mike, thank you so much for joining us on the show again. I think we've had you a number of times on “Tackling Tax.”
MICHAEL CORNETT
Yeah. Thank you Devin. Happy to be here.
DEVIN TENNEY
And I think for this episode we're going to have a little bit of a different format, partly being that Iris also does quite a bit of work in the tariff space. And so, in this case, she's actually going to step into the role of one of the specialists that we're going to be interviewing. So really, I think the goal today is just to have a, you know, fairly casual conversation and get a better idea of what's going on in the tariff space since it seems to be evolving on a nearly daily basis.
IRIS LAWS
Sounds great. Thanks for having us, Devin.
DEVIN TENNEY
I'll let you guys decide on who to start with, but could you give us an update? What's going on with tariffs? Where are we at right now?
MICHAEL CORNETT
Yeah, happy to jump in here. You know, we've been a little over a month now and the tariff refund process is ongoing. It's called CAPE, and it's been actually, I would say, functioning fairly smoothly compared to what most people thought. So, at least in the IEEPA space for refunds, it is progressing along nicely.
IRIS LAWS
That's right, Mike. And I mean really, to give people some perspective, they had estimated a certain rollout date for when they were going to start giving cash back to importers, and they even beat that date. I think they've given out, oh gosh, billions of dollars of cash at this point, Mike, right?
MICHAEL CORNETT
Yeah, they're around $20 billion. They had to correct their filing with the court, but then $20 billion has actually gone out to people and they're processing, you know, at least another $60 billion in the process right now.
IRIS LAWS
And I think the time frame that they had estimated was about three-ish months, right, Mike? And that probably, I haven't heard them change that estimation, but we've seen sort of circumstantial cases where it hasn't been that long. So, I think it's really dependent on your situation.
MICHAEL CORNETT
Yeah. I think you know, those early filers certainly, you know, got money back within 2-to-3 weeks compared to the 2-to-3 months, as you're saying, Iris.
DEVIN TENNEY
Well, Iris, Mike had mentioned the word CAPE, so I don't know if that's like a superhero cape, but what does the acronym actually stand for? And really, what is the process? Mike said that $20 billion has already gone out there looking at processing at least $60 billion more. What is this process? And if I'm a taxpayer who paid tariffs, how might I be able to take advantage of this new process?
IRIS LAWS
Sure. Great question. So, CAPE actually is an acronym that stands for Consolidated Administration and Processing of Entries. But really all you need to know is that that lives on another acronym which is ACE. That's the online portal that's been in place historically for managing imports through CBP. And really, what you need to do to get your refunds, the process is fairly straightforward.
I know we're going to talk a little bit today, probably, about some of the issues that people are facing with this, but high-level, the first thing you need to do is ensure your Form 5106 is updated and filed correctly. That basically is just sort of general information about your business as the importer. Then you want to be sure you have access to your ACE portal, which is again the online platform that this CAPE system lives on.
That's where things get a little hairy sometimes, depending on whether you work with a broker, whether someone that set up your ACE portal is still with your company or not. But then, once you have access to your ACE portal, you're going to be looking through your data first and foremost, right? You're going to be saying, hey, what were the entries that had IEEPA tariffs? What was the timing of liquidation for those entries? And then all that's really required is a CSV, sort of Excel, upload with the different entry numbers.
So, they're not looking for super detailed, you know, data points about these different entries. They just need the entry numbers. You upload that into CAPE. They do the processing, they do liquidation or re-liquidation. And then ultimately, they should give you your cash back.
You do need to make sure that your banking information, your ACH information is updated because they're only providing online refunds at this point, no paper checks. So, that's generally, high-level, the process. You know, CAPE was really rolled out fairly quickly and has been fairly successful, to Mike's point earlier.
MICHAEL CORNETT
Yeah, I think I'll just add one thing. Since we talk acronyms, You know Iris used the word ACE. We're not talking about ace in a card deck. We're talking about the Automated Commercial Environment, which is the online portal that Customs and Border Protection operates for importers of record.
DEVIN TENNEY
So, is that a system that's been in place for a while now?
MICHAEL CORNETT
It is a system that they have been using for a while. I don't know how long exactly, but, you know, importers of record are familiar with that system, or their customs brokers or freight forwarders here they may use, are very familiar with the system. And it's—well, it's an old system that’s still functioning. And with the new addition of the CAPE portal in that system, it's, as we said earlier, it’s surprising how well it has functioned for the refund purpose.
DEVIN TENNEY
Well, that's good news. So, let's say that I'm a taxpayer and I am trying to get a refund and I'm trying to utilize this ACE/CAPE system duo. What issues am I running into, and what are some of the ways in which you guys have been able to assist our clients in navigating those problems?
MICHAEL CORNETT
I think the first thing is you have to be the official importer of record. While you may have paid those tariffs because maybe your supplier charged you, you have to be the one who's officially the importer of record in the system. So, that means you have the legal obligations to file the paperwork, legal obligations to pay. So, you have to confirm that you're that importer of record.
The second, I think, big issue people seem to be running into, as Iris alluded to, was getting access to the ACE system itself. So, you can run your ACE reports to find out what your IEEPA tariff is. That seems to be the hardest thing to do, because some people maybe had someone else set this up, as Iris said. Some people may have set it up themselves, but the person who set it up is no longer there.
I think those are the two biggest issues right now, figuring out what you know, how do I get access to the system so I can at least then file my client.
IRIS LAWS
And some of our clients are running into situations where their brokers might not be responsive or not wanting to handle the refund process, but they still have the top account in this ACE system. So, you know, they're having trouble getting access. Some of our clients are trying to go through CBP to get that whole system situation worked out, but they're having extremely long wait times calling CBP.
So, that's where, you know, working with your advisor might be a great avenue just to sort of figure out and navigate how you can get access to your ACE portal.
DEVIN TENNEY
Well, it sounds like it's a little confusing, but as long as you're an importer of record, there's a process to get a refund for tariffs you may have paid, but I'm curious about those that may have still paid tariffs to some degree, but are not technically the importer of record. Do they have any recourse to get a refund of the tariffs that they paid?
IRIS LAWS
That's a great question. And you're correct in the sense that if you're not the importer of record, legally—unless your contract said otherwise with your supplier who was the importer of record—you're not owed those refunds. And so, we're seeing our clients who are in this situation, you know, work through just negotiation with their suppliers to try to get those refunds back.
We've also seen some consider lawsuits and being a part of a class action suit, depending on the size of the situation. Mike, do you want to speak to that a little more?
MICHAEL CORNETT
Yeah, there's definitely been some all suits filed against some big importers of record. I mean, one prime example has been Costco, where their members are suing to say, you know, you passed on the tariffs to us, we'd like those refunds passed back to us. There are other lawsuits out there.
I think also, if you are kind of flipping that over for a minute, if you're the importer of recording, you did get a refund or are going to get a refund, you need to decide from a business perspective, what are you going to do for your customers if you did pass that tariff on to your customers?
So, it's not just getting it from maybe your suppliers, but also maybe having to refund some of that back to your own customers because they will be knocking on your door saying, hey, you got a refund, we want part of it back.
IRIS LAWS
And I think it gets a little complicated, right Mike? Because, you know, if you're a supplier charging your customers for the impact of a tariff, you're not necessarily charging them a 1-to-1 increase in the price. And so, now suppliers and importers of record are having to go back and consider, calculate, what the impact of tariffs was that they passed along. And that's sort of an exercise that we're helping our clients with too and is something that maybe is an unexpected process for them.
MICHAEL CORNETT
Yeah, Iris, absolutely right. If you didn't pass those tariffs on 1-to-1 to your customers and just kind of included them in a generic price increase, you may now have to go back and try to figure out what portion did you pass on, because you may not pass on all of them anyway. You may have decided to eat part of them.
So, it is becoming a very complicated financial accounting issue to try to understand what tariffs did you pass on to your customers if you were the importer of record?
DEVIN TENNEY
I think you hit the nail on the head there: a complicated financial accounting issue. I'd imagine that you're involving advisors across the board; legal, assurance, tax, etc., on what the impacts of doing these kinds of arrangements might have on your business.
So, I want to segue a little bit. I've heard that the government has filed a notice of their intent to appeal the Court of International Trades Order to refund the IEEPA tariffs, which has kind of created this whole issue, right? What does that actually mean, and how might that affect everything that we've just talked about?
MICHAEL CORNETT
Yeah. You know, as you say, Devin, the Court of International Trade has ordered CBP to refund all IEEPA tariffs, whether unliquidated, which means they weren't final, or even liquidated tariffs, which have been finalized and reached agreement between CBP and the importer of record. The CBP, through the Department of Justice, notified the court that they were going to file an appeal of the order.
Now, there is some question because we haven't seen their actual appeal. But when you do read the notice, it does appear the focus really is on the liquidated tariffs where the court said you have to, you know, pay those back. CBP saying, well, it's not that simple. You have to order us in each case. And in some cases, the liquidation protest period has already passed.
DEVIN TENNEY
And the tariffs that are effectively being refunded under this process, that's then limited to the IEEPA tariffs? That's not covering any other tariffs that may have been imposed on taxpayers and businesses in the US and abroad, is that correct, Mike, Iris?
IRIS LAWS
Yes, this is just related to IEEPA. But really, you know, what the administration is exploring is other code sections to implement tariffs under on a go-forward basis. So, you know, regardless of this appeal they're looking at investigations under Section 301. Those are the tariffs that we're used to being implemented for China. You know, the Section 232 tariffs, which are currently in force for things like copper, steel, aluminum, remain.
And so, I think the big point is that tariffs are still here to stay. And so, it's a worthwhile exercise to think through mitigation strategies going forward.
MICHAEL CORNETT
Yeah. And I think the one tariff that was immediately put in place after the Supreme Court's ruling on IEEPA was what they call Section 122 tariffs. Those expire come July 24th, but they were challenged in the Court of International Trade. The court has held that those tariffs were also illegal. But that decision is on appeal as we speak.
So, we'll wait to see when and if that gets taken up by the Supreme Court and whether those tariffs have to be refunded as well at some point in the future.
DEVIN TENNEY
Well, do we have any parting words for our listeners?
IRIS LAWS
You know, I think more than anything, it's if you are eligible for a refund, take advantage of the process that's in place. You know, there's a bunch of different considerations, whether it be state tax implications or otherwise, to also think through with your advisor.
But that being said, you know, keep an eye out for this appeal that we outlined today that Mike talked through. You know, if you have finalized liquidated entries, it's possible you might want to consider filing suit related to those. But all of that being said, we're just going to have to see what the appeal actually says and go from there.
DEVIN TENNEY
Well, Mike and Iris, thank you so much for joining “Tackling Tariffs,” I mean “Tackling Tax.” Iris, it was very fun having you on the other side of the table today. So, but no, thank you both. And I look forward to our next discussion on tariffs.
MICHAEL CORNETT
Thank you, Devin
IRIS LAWS
Thanks, Devin.
DEVIN TENNEY
And that's our show. Thanks for joining. Remember to subscribe and listen in for the next episode of the podcast. Until next time.
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