Tariff Refunds Are the New Hidden Asset on the M&A Diligence List

When the Supreme Court ruled earlier this year that a category of Trump-era tariffs was invalid, the headline coverage focused on what it would mean for trade policy and government revenue. Inside M&A practice, the more practical question is who owns the refund claims. Importers that paid tariffs during the relevant period may be entitled to recover material amounts from the federal government, and most have not booked any of it. For deal teams, that creates a fresh diligence question that did not exist last year: is the target sitting on a refund claim, what is it worth, and who keeps it after closing?

A Brief Recap of the Tariff Refund Landscape

The decision invalidated specific tariff actions taken under contested statutory authority, opening the door to refund claims by importers that paid those tariffs. According to Sidley Austin's April 2026 analysis, the pool of potential refund claims could approach $150 billion across the affected period. The mechanism for recovery, the documentation required, the limitations periods, and the priority of claims relative to other government creditors are all still being worked out, but the legal entitlement for many importers is no longer in serious dispute.

For an M&A practitioner, that pool of refund entitlement sits inside the financial statements of any importer that paid the affected tariffs. It is rarely on the books as a receivable because the refund process is uncertain and the timing is unpredictable. It is also rarely highlighted in management presentations because most management teams are focused on operating performance, not on contingent legal recoveries. That gap between economic reality and disclosed financials is exactly where diligence creates value.

What Buy-Side Diligence Now Has to Do

Buyers acquiring importers, manufacturers with imported inputs, distributors of imported goods, or any business with material customs activity over the relevant period need to add tariff refund analysis to the diligence scope. The work is not particularly complex, but it does require coordinated effort between the financial diligence team, customs counsel, and the company's import recordkeeping function.

The basic exercise is to pull the target's import history over the relevant years, identify entries that paid the affected tariff categories, calculate the gross refund potential, and apply a probability and timing discount to arrive at a present value. The discount factors include the likelihood that the specific tariff classification is recoverable, the strength of the company's documentation, the company's ability to file timely claims, and the time value of money on a recovery that may not arrive for two or more years.

For sellers and buyers alike, the analysis should produce a single number that represents the best estimate of the refund claim's present economic value. That number then becomes a negotiation point in the purchase agreement.

Allocation in the Purchase Agreement

The purchase agreement allocation question has three workable answers, each with trade-offs.

The first is to allocate the refund claim entirely to the seller as a pre-closing receivable. The seller pursues the claim post-closing, the buyer cooperates with documentation and access, and the seller keeps the recovery. This structure is clean from a buyer's perspective because it removes the asset from the deal entirely, but it requires careful drafting of the buyer's cooperation obligation and an agreed allocation of expenses.

The second is to allocate the refund claim entirely to the buyer as part of the purchased assets. The buyer prices the deal with the refund claim included as a present-value asset, the seller transfers the claim and supporting documentation, and the buyer pursues the recovery. This structure is cleaner operationally because the buyer controls the post-closing process, but the buyer assumes the timing and collection risk.

The third is a contingent value right or earnout-style sharing arrangement. The refund claim is pursued by the buyer with a defined cooperation obligation, and the recovery (net of expenses) is shared with the seller above a threshold or according to an agreed formula. This structure aligns incentives and avoids requiring the parties to agree on a present value, but it adds post-closing administrative complexity and a long tail of contingent payments.

Sell-Side Preparation

Sellers preparing to go to market in 2026 should expect buy-side diligence to ask the tariff refund question. Sellers who have already done the analysis (with proper customs counsel involvement) and who can present a documented, defensible refund estimate as part of the data room have two advantages.

First, they can price the asset into the going-in valuation discussion rather than letting the buyer discover it during diligence and use the discovery as leverage. Second, they can structure the allocation question on their preferred terms rather than reacting to a buyer-drafted clause late in the negotiation.

The work product the seller should produce includes a customs entry summary covering the relevant period, an analysis identifying entries paying the affected tariff categories, a calculation of gross refund potential, and a summary of the company's documentation completeness. This package can sit in the data room alongside the standard tax, environmental, and litigation diligence materials.

What the Quality of Earnings Process Has to Add

A standard quality of earnings analysis would not historically have addressed tariff refunds, because the refunds were not a known asset class. In 2026, sell-side QoE providers are beginning to incorporate a tariff refund schedule as part of the working capital and balance sheet adjustments analysis. The schedule typically appears as a footnote item in the QoE report identifying the company's tariff refund exposure, the estimated recovery, and the expected timing.

For buyers, the QoE report's treatment of the tariff refund claim becomes a starting point. The buy-side diligence team confirms the seller's analysis, applies the buyer's own probability and timing discount, and produces a number that informs the purchase price negotiation and the allocation language.

For the working capital target, tariff refunds are typically treated as a balance sheet item outside the working capital calculation (because they are non-trade in character and the timing is unpredictable). Treating them inside working capital can produce distortions at closing and post-closing true-ups.

Lender and Insurance Considerations

Lenders financing acquisitions of businesses with material tariff refund exposure have begun asking about the refund claim and how it is being treated. The most common approach is to exclude the refund claim from the borrowing base and to treat any recovery as an excess cash flow sweep or a permitted distribution to the equity, depending on the deal structure.

R&W insurance carriers are also asking the question. Where a refund claim is being retained by the seller, carriers will typically exclude any breach related to the claim from coverage. Where a refund claim is being transferred to the buyer, carriers will look for clean documentation supporting the claim's existence and the buyer's right to pursue it.