*Editor’s Note: This article is a follow-up to “What a ‘Mess’: IEEPA Refunds and the Emerging Wave of Consumer Litigation,” which examined the early disputes over who may ultimately be entitled to IEEPA tariff refunds. This article turns to the contractual lessons businesses can draw from those disputes.*

Back in February, Justice Kavanaugh called the IEEPA tariff refund process a “mess.” At the time, the description reflected the uncertainty surrounding billions of dollars in potential refunds. Shortly thereafter, a wave of lawsuits emerged asking a deceptively simple question: if businesses passed the cost of tariffs downstream, who should ultimately benefit when those tariffs are refunded?

To no one’s surprise, particularly Justice Kavanaugh’s, after almost 8 months, the mess has not disappeared; it has simply changed hands.

As IEEPA refunds make their way back to importers, businesses are confronting a question that many commercial agreements never anticipated. Contracts frequently address who bears the cost when a new tariff is imposed, whether through a tariff surcharge, price-adjustment provision, or other pass-through mechanism. Far fewer address the opposite scenario: what happens when the tariff is later invalidated and the Importer of Record (“IOR”) receives the money back?

Companies have already taken different approaches to answer that question. Costco, for example, has publicly stated that it is using much of the value recovered through tariff refunds to reduce prices for its members. Other companies have taken a different approach. Lululemon, which reported receiving approximately $134.5 million in IEEPA tariff refunds during the second quarter of 2026, is defending litigation brought by customers seeking a share of those refunds. IKEA and other retailers likewise face lawsuits alleging that customers who bore tariff-related price increases should benefit when the corresponding duties are later refunded. These cases remain pending, and the companies dispute that customers are legally entitled to the refunds.

These approaches may help companies navigate the immediate consequences of the IEEPA refunds, but they do not resolve the deeper issue the refund process has exposed: many commercial relationships were never structured to answer the question in the first place. Rather than waiting for the next tariff increase or refund to determine who bears the cost and who receives the benefit, businesses should consider addressing those questions expressly in their contractual terms.

The IEEPA experience therefore offers a broader contractual lesson for businesses operating in an increasingly volatile trade environment. Allocating tariff risk requires more than deciding who pays when duties go up. Companies should also consider who benefits when those duties come back down or come back altogether.

Receiving the Refund Is Only the Beginning

As a matter of customs law, the starting point is relatively straightforward. The IOR is generally the party entitled to seek and receive a refund from U.S. Customs and Border Protection (“CBP”). A customer that economically bore some portion of a tariff through higher prices does not, for that reason alone, acquire a direct statutory right to the refund from CBP.

But customs law does not necessarily end the inquiry. Once CBP refunds the duties to the IOR, the inquiry may shift from who is entitled to receive the money from CBP to what obligations exist between the private parties.

That distinction has become increasingly important as businesses and their customers consider how tariff costs were originally allocated. Some businesses imposed a separately identified tariff surcharge. Others increased prices by a percentage intended to account for tariff costs. Still others treated tariffs as one of many increased costs incorporated into the overall commercial price of the product.

These distinctions can matter.

A customer that paid a separately identified charge expressly described as reimbursement for a particular tariff may have a different legal argument than one that simply purchased a product at a higher negotiated price. Likewise, where a company represented that a price adjustment was intended to recover tariff costs, customers may attempt to connect those payments to a subsequent government refund.

This is where the concept of “double recovery” enters the discussion. The basic theory underlying nearly 100 pending class actions and other developing litigation is that a business should not be permitted to collect a tariff-related amount from its customers and then retain a government refund corresponding to the same tariff cost. Plaintiffs have pursued theories including breach of contract, unjust enrichment, and state consumer-protection claims to make that argument.

Importantly, however, these remain developing litigation theories, not an established rule that an importer receiving an IEEPA refund must automatically pass that money downstream. Any potential obligation is more likely to arise from the parties’ contracts, representations, and other private-law principles than from customs law itself.

What Did You Tell Your Customers?

The contractual documents may not be the only relevant consideration, particularly where, as is often the case, they are silent as to the treatment of tariffs and any subsequent refunds. Businesses should also examine how tariff-related price increases were communicated to customers.

For example, there may be an important difference between telling customers that changing tariff conditions are one of several factors contributing to a commercial price increase and telling them that a specific increase is being imposed to recover increased tariff costs. In the latter case, the communication creates a more direct connection between the amount charged to the customer and the underlying tariff expense.

Representations concerning how prices will respond to future tariff changes may also become relevant. Communications linking pricing decisions to the imposition, modification, or removal of tariffs could later be considered in determining the parties’ expectations regarding subsequent adjustments or refunds.

Similarly, the manner in which tariff costs were calculated and passed downstream may affect both the nature and scope of a potential claim. Where tariff costs were not traced to particular entries, invoices, or customers, establishing a direct connection between amounts previously paid and a subsequent CBP refund may be difficult. Nevertheless, the absence of a formal allocation methodology does not necessarily resolve the underlying question, particularly where the parties’ agreements or communications otherwise connect pricing adjustments to tariff costs.

Drafting for the Next Tariff

This is perhaps the most useful lesson to take from the IEEPA “mess”: tariff provisions should address both sides of the equation and should be negotiated deliberately.

Contracts can specify whether the IOR must pursue available refunds; whether refunds must be passed through or credited to customers; how legal, administrative, and other recovery costs will be allocated; whether interest paid by CBP is included; and how partial refunds involving only certain entries, products, customers, or time periods will be treated.

Businesses should also consider what happens when tariffs are reduced or eliminated without producing a formal government refund. If a contract permits an immediate price increase when a new tariff is imposed, should it require a corresponding adjustment when that tariff expires, is excluded, or is invalidated? The answer does not need to always be yes, but the contract should ideally provide the answer before the parties have money at stake. The parties may also consider reasonable limitations on any refund obligation, such as the period during which a customer may claim a refund, when any refund or credit becomes due, and whether the obligation applies to refunds resulting from government action as opposed to refunds arising from an error, overpayment, or misunderstanding unrelated to the underlying tariff.

Finally, companies should review not only master agreements but also purchase orders, acknowledgments, invoices, tariff notices, and standard terms and conditions. Conflicting language across these documents may create uncertainty over which terms govern and what the parties actually agreed regarding tariff costs and subsequent recoveries.

And the Refund Process Continues…

Of course, the refund process itself is not over. After previously anticipating an August 20 launch, CBP pushed back the next phase of its CAPE refund system. Phase 3 is now expected to go live on October 6, 2026, and will address certain entries that have been liquidated for more than 80 days.

For importers still awaiting refunds, the October 6 launch is another important date to keep on the calendar. Businesses should continue monitoring their entries, liquidation and protest status, CAPE eligibility, and electronic refund information in ACE as the process develops. Importers with protests or pending litigation should also coordinate carefully with counsel before taking other action that could affect refund eligibility.

The IEEPA refunds may be unusual in scale, but the contractual problem they exposed is not unique to IEEPA. In a trade environment where tariffs can be imposed, modified, excluded, challenged, and refunded, businesses should draft for both possibilities: what happens when the government takes the money, and what happens if it gives it back.