Recent Tax Accounting Developments: Tariff Refunds, CAMT Reversals, and Hyatt’s Loyalty Program Tax Dispute
Recent SEC filings reveal the accounting impact of tariff refunds, valuation allowance reversals, and tax disputes.
Changes in tax law or court rulings often prompt companies to record large one-time accounting adjustments, which may materially affect financial statements and lead to large swings in reported earnings and tax rates. This piece discusses three examples: accounting for refunds of tariffs invalidated under IEEPA, reversals of CAMT-related deferred tax valuation allowances following new Treasury guidance, and the ongoing Hyatt loyalty-program tax dispute. In each case, companies faced significant judgment calls about the recognition, measurement, or timing of tax-related items in financial statements, with two companies in the same industry potentially reaching different conclusions.
Tariff Refund Accounting and Disclosure
Beginning in February 2025, the administration of Donald Trump imposed tariffs under the International Emergency Economic Powers Act (IEEPA), initially targeting imports from China and later extending tariffs to certain imports from Mexico and Canada. On April 2, 2025, the administration announced a broader set of “reciprocal tariffs” affecting imports from multiple countries. Companies and importers challenged the tariffs in court, arguing that IEEPA did not give the president authority to impose broad import duties. On February 20, 2026, the Supreme Court of the United States ruled that IEEPA does not authorize tariffs, effectively calling into question the legal basis for those duties and opening the door to refund claims.
However, the Supreme Court Opinion did not address refunds, creating uncertainty over whether companies can recover paid tariffs and what process they must follow. This uncertainty has accounting implications. According to Big 4 Tariff Accounting Guidance, companies may use either the loss recovery model or a gain contingency accounting approach to recognize potential refunds of tariffs invalidated by the Supreme Court’s IEEPA Ruling (see guidance from Deloitte and KPMG).
A loss recovery model. Under this method, by analogy with ASC 410-30, companies may recognize a refund receivable once recovery is considered probable and reasonably measurable, even if cash has not yet been received. ASC 450 defines “probable” event as the one “likely to occur”, which, according to PwC accounting guidance, is in practice understood to meet a 75% probability threshold.
A gain contingency model. This approach sets a higher recognition threshold: refunds generally are not recognized until the gain is considered “realized or realizable,” meaning the company has received cash or has a fixed claim to cash that is no longer subject to significant uncertainty, appeal, clawback, or refund denial. According to EY guidance, the condition is likely to be satisfied when “CBP acknowledges the amount the government will refund the company”.
Jorja Siemons cited me in her Bloomberg Tax article on accounting and disclosure of tariff refunds:
“Even if peer companies choose the same model, the associated judgment calls might lead them to different decisions about when refunds should be recognized, Usvyatsky said. “There is definitely room for inconsistent accounting—and even more room for inconsistent disclosure,” Usvyatsky said.”
The distinction between the models may affect the timing of refunds recognition and the comparability between different companies. Two peer companies with similar tariff exposure may select different accounting approaches: one may apply the loss recovery model, while the other applies the gain contingency model. Under the loss recovery approach, companies may recognize estimated refund receivables before cash is received if recovery is considered probable and reasonably measurable. At the same time, the gain contingency model typically delays recognition until the refund amount is approved, acknowledged by U.S. Customs and Border Protection (CBP), or received.
But even if two companies select the same model, the outcome may still differ because both approaches require significant judgment about the refund process, the strength of supporting documentation, the scope of eligible claims, collectability, and the likelihood of government challenge or denial. As a result, similar companies could recognize different amounts — or recognize them in different reporting periods — despite facing the same underlying tariffs.
Recent disclosures by automakers illustrate how companies in the same industry may apply the available accounting models in practice. As reported in Bloomberg Tax’s “Automakers’ Tariff Refund Treatment Varies in Quarterly Updates”, Ford Motor Company recognized a $1.3 billion IEEPA related benefit in the first quarter of 2026, while General Motors stated that it recorded a $0.5 billion receivable based on tariffs previously paid that were subject to the Supreme Court ruling, but excluded the anticipated refund from adjusted automotive free cash flow guidance because of uncertainty around timing of payment.
Tesla, by contrast, said it would not recognize the benefit until uncertainties around the refund process were resolved. From Tesla’s 10-Q disclosure:
“In February 2026, the U.S. Supreme Court issued a ruling invalidating certain tariffs previously imposed under the International Emergency Economic Powers Act (IEEPA). As a result of this ruling, we may be eligible for a refund of tariffs previously paid on imported goods. As the recoverability and timing of any such refund remains uncertain, we have not recognized a receivable and corresponding offset to expense or asset as of March 31, 2026 and will not until such amounts are realized or realizable. We continue to monitor these developments and their potential impact on our results of operations, including reduction of revenue for any potential refunds to certain energy storage customers for which a contractual obligation exists.”
The “realized or realizable” language in Tesla’s disclosure suggests that the Company intends to use the gain contingency method and record the refunds once the government approves the amount.
The Bloomberg Tax article also noted that analysts viewed Tesla’s refusal to recognize tariff refund benefits as unexpectedly cautious, given the company’s broader accounting reputation:
“Tesla’s approach is surprising given how aggressive it has been in other aspects of accounting, like in its depreciation of equipment, said Gordon Johnson, CEO of GLJ Research LLC.
Tesla’s decision is in line with what I think is appropriate because there are a lot of uncertainties associated with IEEPA,” Johnson said.”
Tesla’s decision not to recognize IEEPA tariff refund benefits in the first quarter is also notable given a prior example of Tesla’s conservative tax accounting involving significant uncertainty and management judgment — namely, the Company’s delayed release of its deferred tax asset valuation allowance in January 2024.
In a prior Deep Quarry analysis of Tesla’s $5.9 billion deferred tax asset valuation allowance release, I discussed how Tesla maintained a nearly full valuation allowance despite sustained profitability, releasing the reserve only after an extended SEC review focused on whether the company had sufficient evidence to support the full valuation allowance approach. That is, the SEC challenged the implied assumption that none of the deferred tax assets will be realized because the Company wouldn’t have sufficient pre-tax income to realize the deferred tax benefits.
The analysis highlighted that ASC 740’s “more-likely-than-not” threshold leaves substantial room for judgment, particularly around the timing of recognition. The release of the valuation allowance increased Tesla’s net income in the fourth quarter of 2023 by $5.9 billion.
In both tariff refunds and valuation allowance release cases, Tesla appears to have delayed recognition until uncertainties were more clearly resolved, even though another company applying the same accounting framework might have recognized benefits earlier.
Tesla’s refusal to recognize IEEPA tariff refund benefits in the first quarter may also reflect a practical earnings consideration. As discussed on the earnings call, first-quarter results benefited from more than $230 million of one-time warranty reserve adjustments and more than $250 million of benefits from non-IEEPA tariff refund recognition related to tariffs paid in prior periods. From Tesla’s first quarter earnings call transcript:
“Note that we’ve had certain one-time benefits from warranty write-downs around $230 million and some relief on tariffs. We have not realized any benefit from the recent Supreme Court ruling on IPR tariffs, as there is still a lot of uncertainty around the final outcome…
We set yet another record with gross margins in this business over 39.5% due to some one-time benefits from certain tariff recognitions of more than $250 million from certain tariffs which we had paid in prior quarters. “
Put it differently: Tesla’s existing one-time benefits already appeared sufficient to support results relative to consensus EPS expectations. Craig Irwin of Roth Capital Partners, in an interview with Bloomberg Tax, noted Tesla could have used anticipated tariff refunds to further boost quarterly results, but chose not to recognize those benefits yet, which he viewed as a sign of a comparatively disciplined and balanced accounting approach. However, the decision to delay recognition also means that potential benefits associated with the IEEPA refunds could instead be recognized in future periods if and when the related uncertainties are resolved.
According to Reuters, the U.S. Customs and Border Protection agency is expected to issue the first refunds as early as May 12, 2026. Thus, the next earnings cycle is likely to provide much clearer disclosure about how companies are accounting for tariff refunds — including whether they are recognizing receivables under loss recovery models or gain contingency models, and the implications for the net income and free cash flow.
Corporate Alternative Minimum Tax (CAMT) and Deferred Tax Asset Accounting
One-time tax adjustments can create large swings in reported net income and effective tax rates even when there is little immediate impact on underlying operations. Changes in deferred tax asset valuation allowances are one example of such adjustments because they flow through income tax expense and can materially increase or decrease quarterly earnings. In this section, I examine how the interaction between the One Big Beautiful Bill Act (OBBBA) and the Corporate Alternative Minimum Tax (CAMT) led several large companies to record multi-billion-dollar valuation allowances in 2025, and how subsequent IRS guidance in Notice 2026-7 prompted some companies to partially or fully reverse those charges in 2026.
In my November 2025 analysis, I discussed how the interaction between One Big and Beautiful Bill (OBBBA) and Corporate Alternative Minimum Tax (CAMT) may lead companies to reassess the realizability of their deferred tax assets.
To recap, the OBBBA was generally favorable for large corporations because it restored or expanded several deductions that reduce U.S. federal cash taxes, including immediate expensing of domestic research and development costs and accelerated depreciation for certain capital expenditures. However, the benefits of those provisions were capped for some companies by the 15% Corporate Alternative Minimum Tax (CAMT), which is based on Adjusted Financial Statement Income (AFSI) rather than regular taxable income.
Under U.S. GAAP, companies can carry deferred tax assets (DTAs) at their full amount if management concludes it is more likely than not that future taxable income will be sufficient to realize the related tax benefits. If the available evidence suggests that some portion of those tax benefits may not ultimately be usable — for example, because the company may not generate enough future taxable income — the company must record a valuation allowance to reduce the DTAs to the amount expected to be realizable. Changes in the valuation allowance flow through to income tax expense, potentially creating a significant non-cash impact on net income.
The cap imposed by CAMT prompted several large companies, including Meta and Qualcomm, to revalue their Deferred Tax Assets and record multi-billion dollar valuation allowances. From Meta’s 10-Q filed October 30, 2025 (emphasis added):
“On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted, introducing several significant U.S. income tax provisions that will reduce our U.S. federal cash tax payments for the remainder of 2025 and future years. The provisions include the immediate expensing of domestic research and development costs and certain capital expenditures beginning in 2025, as well as an enhanced deduction for foreign-derived intangible income effective in 2026. The benefits from these provisions are limited by the 15% Corporate Alternative Minimum Tax (CAMT). As a result, we recorded a $15.93 billion discrete charge related to the implementation as of the enactment date of OBBBA, including recognition of a valuation allowance against our U.S. federal deferred tax assets. In determining the valuation allowance, our accounting policy incorporates the expected impact of future years’ CAMT in assessing the realizability of our deferred tax assets.”
IRS Notice 2026-7, issued in February 2026, appears to have partially addressed one of the key issues identified in Meta’s original disclosure: the mismatch between immediate tax deductions for previously capitalized domestic R&D costs and the calculation of CAMT based on Adjusted Financial Statement Income (AFSI) (see KPMG discussion on Notice 2026-7).
