CORPORATE GOVERNANCE | 2026-10-06

Who Gets the Tariff Refund When the Company Is Sold? Allocating IEEPA Refund Rights in M&A Purchase Agreements for California Buyers and Sellers

IEEPA refunds have turned a customs receivable into a negotiated deal term. Standard tax-refund provisions were not drafted with tariffs in mind, and the importer-of-record structure, CBP offsets, customer pass-through claims, and federal limits on assigning claims against the government all affect who actually ends up with the money.

In most acquisitions, a pre-closing tax refund is a familiar item: the purchase agreement says who gets it, and the parties move on. IEEPA tariff refunds do not fit that pattern neatly. After the Supreme Court held on February 20, 2026 in Learning Resources, Inc. v. Trump that IEEPA does not authori

The magnitude explains the attention. Estimates of the total IEEPA refund pool reported by law firms and the press in 2026 have ranged from roughly $150 billion to more than $170 billion, and CBP's own processing figures, as reported by industry sources in September 2026, reflected more than $130 billion accepted into its refund process. At the level of an individual mid-market company, a refund can equal a significant fraction of annual EBITDA. A buyer who acquires a company with a large pending refund without addressing it in the contract may receive a windfall; a seller who sells without addressing it may give one away. Either outcome is a drafting failure.

This article explains why tariff refunds are harder to allocate than ordinary tax refunds, how deal structure changes the analysis, the provisions that commentators recommend, and the post-closing risks that should be allocated alongside the refund itself.

Why Standard Tax-Refund Provisions May Not Work

Purchase agreements commonly include a covenant that pre-closing tax refunds belong to the seller, with an obligation on the buyer to pay them over when received. Whether that covenant reaches an IEEPA refund depends first on definitions. Many agreements define "Taxes" by reference to income, franchise, sales, use, property, payroll, and similar taxes, and some include "customs duties" expressly. Others do not mention duties at all. Commentators have noted that whether tariffs are taxes for purposes of a contractual definition is a disputable point, and that the typical tax-refund provision was not designed for the features that make tariff refunds distinctive.

Those features include:

• The payee is fixed by customs law. CBP pays refunds to the importer of record, electronically. The refund will be paid to whichever entity holds that status for the entries, regardless of what the purchase agreement says.
• The process is long and multi-path. Refunds move through CBP's CAPE process, through protests under 19 U.S.C. § 1514, and through litigation in the Court of International Trade, on different timetables for different entries.
• The amount may be reduced. CBP has stated that refunds are subject to netting within each entry and to set-off of legally fixed and undisputed debts under 19 CFR 24.72.
• Customers may claim it. Businesses that passed tariffs downstream face demands and, in many cases, class actions seeking a share.
• Tax follows the refund. A refund of duties that previously reduced taxable income is generally taxable under the tax benefit rule, so the party that receives the cash may also bear tax on it.

Firms advising on these issues, including Greenberg Traurig, Mayer Brown, and Adams and Reese, have converged on the same recommendation: address tariff refunds explicitly, in their own provisions, rather than relying on general tax covenants.

Stock Deals Versus Asset Deals

Stock purchases and mergers

In a stock purchase or a merger, the target entity typically remains the importer of record for its historical entries. After closing, the refund is paid to an entity the buyer controls. If the parties intend the seller to receive the economic benefit, the agreement must create a contractual pay-over obligation and the mechanics to enforce it. Commentators have flagged equity deals as the context where silence most often favors the buyer by default.

Asset purchases

In an asset deal, the selling entity usually remains the importer of record for pre-closing entries, and the refund will be paid to the seller unless the parties arrange otherwise. Mayer Brown has observed that sellers in asset deals may exclude refund claims from the purchased assets, reasoning that tariff costs already depressed the business's earnings and therefore the price. A buyer who wants the refund must negotiate for it expressly.

The Anti-Assignment Act

Transferring the refund claim itself is complicated by the federal Anti-Assignment Act, 31 U.S.C. § 3727. Under that statute, an assignment of a claim against the United States is valid only after the claim is allowed, the amount is decided, and a warrant for payment is issued, and the assignment must satisfy formal requirements including attestation by two witnesses and acknowledgment before an official authorized to take acknowledgments. Transfers by operation of law, such as through a merger, have generally been treated differently from voluntary assignments. As a practical matter, most deals do not attempt to assign the claim; they leave it with the importer of record and use contractual pay-over obligations instead. Our analysis of selling or financing IEEPA refund claims discusses the statute in more detail.

The Provisions That Matter

1. Definitions

Define the asset precisely: for example, "IEEPA Refunds" meaning all refunds, reliquidation proceeds, and interest under 19 U.S.C. § 1505 attributable to duties imposed under the International Emergency Economic Powers Act on entries made before the closing date. Consider whether to extend the definition to refunds of other duties later held unlawful, as some commentators suggested before the Supreme Court ruled.

2. Allocation and pay-over

State who is entitled to the refund and require the party that receives it to pay it over within a fixed period, net of agreed deductions. Address partial payments, payments received years after closing, and refunds that arrive after an intervening sale of the business.

3. Control of the claim

Specify who decides whether and how to pursue the refund: which entries go through CAPE, whether to protest, whether to join or file Court of International Trade litigation, whether to settle, and who selects counsel. Deadlines matter: protests generally must be filed within 180 days after liquidation under 19 U.S.C. § 1514(c)(3), and actions under the Court of International Trade's residual jurisdiction, 28 U.S.C. § 1581(i), are subject to the two-year limitations period in 28 U.S.C. § 2636(i). A party that loses control of the claim must be protected against the other party letting deadlines pass.

4. Efforts and cooperation

The party entitled to the refund usually needs the other party's help: access to ACE data, signatures on declarations, responses to CBP inquiries, and transfer of funds. Commentators have emphasized cooperation covenants and a clear effort standard, along with a defined period during which the obligation applies.

5. Costs

State who bears legal fees, customs broker charges, and internal costs of pursuing the refund, and whether they are deducted from recoveries before pay-over.

6. Offsets and netting

If CBP nets the refund against underpayments on the same entry or sets off a debt, the pay-over amount should reflect that, and the agreement should say who bears an offset of a debt that relates to the other party's period. Our guide to offsets against IEEPA refunds explains how these reductions arise.

7. Customer pass-through claims

The party that receives the refund should generally bear the risk of customer claims to it. Pair the refund allocation with a specific indemnity for pass-through claims, with defense-control provisions. Our article on consumer and customer pass-through claims covers that exposure.

8. Taxes on the refund

Decide whether pay-over is gross or net of the tax the receiving entity incurs on the refund, and how to compute that tax. The tax benefit rule often makes a refund taxable to the entity that receives it, which in a stock deal may be the buyer-controlled target even though the seller receives the economic benefit.

9. Interaction with price mechanics

Specify whether the refund is excluded from working capital, cash, and indebtedness calculations, so that it is not counted twice, and whether it is excluded from earnout metrics. Accounting commentary has treated an unrealized refund as a gain contingency, which affects how it would otherwise flow through closing statements.

10. Survival and dispute resolution

Refunds may arrive long after general representations expire. Make the refund covenants survive until the claims are finally resolved, and consider an expert or accounting-firm mechanism for computational disputes.

Diligence: Valuing the Refund Before Signing

For buyers, commentators have recommended asking advisors early in diligence to estimate the potential size of the refund, so the buyer can decide whether to reflect it in its bid or reserve it as a negotiating point. Useful diligence requests include:

• ACE data showing entries with IEEPA duties, liquidation status, and dates;
• CAPE declarations filed and their status, protests filed, and any Court of International Trade participation;
• open CBP bills, penalties, and other debts that could be set off;
• pricing records showing whether tariffs were passed through, and customer communications about tariffs;
• customer and supplier contracts with tariff-adjustment or refund provisions; and
• pending demands or litigation relating to tariff pass-through.

For sellers, the same diligence supports a credible valuation of the refund and an informed decision whether to retain it, sell it with the business, or monetize it separately.

Representations and Warranties Insurance

Tariff exposure has also affected representations and warranties insurance. Holland & Knight reported in late 2025 that insurers were unlikely to cover tariff-related representation breaches and recommended negotiating any exclusion narrowly. Parties should not assume that a breach relating to customs compliance, tariff payments, or refund entitlement will be insured, and should allocate those risks through specific indemnities or escrows where appropriate.

An Illustrative Example

The following example is hypothetical and is provided for illustration only.

A private equity sponsor agrees to sell a California consumer-products company through a stock sale. The company paid about $6 million in IEEPA duties in 2025 and has CAPE declarations pending on most entries; a few entries have liquidated and are under protest. The draft purchase agreement allocates pre-closing "Tax refunds" to the seller, but "Taxes" does not mention customs duties. Seller's counsel proposes a standalone IEEPA refund covenant: the seller receives refunds and statutory interest on pre-closing entries, net of documented costs and of any tax the target incurs on them; the buyer causes the target to pursue the claims with commercially reasonable efforts under the seller's direction; and the seller indemnifies the buyer against customer claims to those refunds. The buyer, for its part, insists that the refund be excluded from net working capital and that any CBP set-off of a post-closing debt not reduce the seller's share. Each provision answers a question the original definition left open.

Strategy for Sellers

A seller with a meaningful pending refund has several options, and the right one depends on the size of the refund, the expected timing, and the seller's tolerance for post-closing involvement.

• Retain the refund through a pay-over covenant. The seller keeps the economic benefit but depends on the buyer's cooperation for months or years after closing. Strong control, cooperation, and information rights are essential.
• Price the refund into the deal. The seller transfers the refund with the business and seeks a higher price. This produces a clean exit but requires the buyer to accept a valuation of a contingent, offset-exposed, litigation-dependent asset.
• Share the refund. The parties split recoveries by formula, which can bridge valuation gaps and align incentives to pursue the claim.
• Pursue the refund before closing. Where the timetable allows, filing CAPE declarations and protests before signing converts uncertainty into a documented status, even if payment has not yet arrived.

Sellers should also consider that retaining the refund can mean retaining exposure. If customers sue to recover tariff pass-through, a buyer will expect the party that keeps the refund to bear those claims.

Strategy for Buyers

For buyers, the first question is whether the refund is visible in the process. In competitive auctions, commentators have suggested that buyers estimate refund value early and decide whether to reflect it in their bid or use it as a negotiating point later. Buyers should also think about the obligations they are accepting: a covenant to pursue the refund for the seller's benefit commits post-closing management time and legal resources, and a buyer that controls the target will be the party CBP deals with. Buyers should insist that pursuing the refund does not require the target to take positions that create customs compliance risk on post-closing entries, and that costs are reimbursed.

Agreements Signed Before the Supreme Court Ruled

Many transactions closed in 2025 or early 2026, before the Supreme Court's February 20, 2026 decision, with no specific provision on tariff refunds. In those deals, entitlement will turn on interpretation of the agreement as written. Under California law, a contract is interpreted to give effect to the mutual intention of the parties at the time of contracting, Civil Code § 1636, and where a contract is reduced to writing, that intention is ascertained from the writing alone if possible, Civil Code § 1639. Many acquisition agreements are governed by Delaware or New York law instead, and the choice-of-law clause should be the first provision reviewed. Key questions include whether "Taxes" includes customs duties, whether pre-closing refunds belong to the seller, whether the refund was an excluded asset, and whether the refund affected any purchase price adjustment.

Disputes After Closing

Where an agreement is silent or ambiguous, disputes often turn on the definition of taxes, the scope of the excluded and purchased assets, and whether the refund was reflected in the price. Parties in that position should collect the negotiation history, the closing statement, and the data room record before a dispute escalates. In many cases, the more efficient resolution is a negotiated sharing arrangement before the refund is paid, rather than litigation after the money has moved.

A Drafting Checklist

1. Define the refund, including interest, and the entries and periods it covers.
2. State who is entitled to it and the pay-over mechanics and timing.
3. Assign control of CAPE filings, protests, and litigation, with deadline protections.
4. Impose cooperation and information obligations and an effort standard.
5. Allocate costs and decide whether they are netted from recoveries.
6. Address CBP netting and set-off, including set-off of debts from the other party's period.
7. Allocate customer pass-through claims with a specific indemnity.
8. Decide whether pay-over is net of tax on the refund.
9. Exclude the refund from working capital, cash, debt, and earnout metrics as appropriate.
10. Provide survival until final resolution and a dispute mechanism for calculations.

Frequently Asked Questions

Who receives an IEEPA refund after a company is sold?

CBP pays the importer of record. In a stock deal, that is usually the target, now controlled by the buyer; in an asset deal, it is usually the seller. Who keeps the economic benefit depends on the purchase agreement.

Does a standard tax-refund clause cover tariff refunds?

Not reliably. Whether it does depends on how the agreement defines "Taxes," and many definitions do not expressly include customs duties. Commentators recommend a standalone provision.

Can the refund claim be assigned to the buyer or seller?

Assignments of claims against the United States are restricted by the Anti-Assignment Act, 31 U.S.C. § 3727, until the claim is allowed, the amount decided, and a payment warrant issued. Most deals use contractual pay-over obligations instead.

Who should control the refund process after closing?

Usually the party that receives the economic benefit, subject to cooperation obligations, information rights, and protection against missed deadlines such as the 180-day protest period.

What happens if customers claim part of the refund?

Allocate that risk expressly, typically to the party that receives the refund, through a specific indemnity with defense-control provisions.

Will R&W insurance cover tariff issues?

Often not. Insurers have been reported to exclude tariff-related matters, so specific indemnities or escrows may be needed.

Related Corporate & Trade Guides

• Income tax treatment of IEEPA tariff refunds
• Corwin cleansing and stockholder approval in M&A
• CAPE Phase 3 and refunds on liquidated entries

Speak With a California M&A Attorney

A tariff refund that is not addressed in the purchase agreement is a dispute waiting to happen. Trembach Law Firm advises California buyers and sellers on allocating IEEPA refund rights, diligence on customs exposure, and resolving post-closing refund disputes. Call (818) 514-7680 for a consultation.

Contact Trembach Law Firm at (818) 514-7680 for a confidential consultation.

Trembach Law Firm | 27001 Agoura Road, Suite 350, Calabasas, CA 91301