Government's Refund Concession in Tariff Case May Force Supreme Court's Hand on Authorization Question

December 28, 2025 — The federal government's concession that it would not oppose refunds of tariffs collected under the International Emergency Economic Powers Act (IEEPA) has created a strategic bind for the Supreme Court, which must now decide whether to invalidate tariffs that have generated an estimated $750 billion to $1 trillion in revenue—a decision that could trigger massive refunds and potential financial market disruption.

The concession came in AGS Company Automotive Solutions, et al. v. U.S. Customs and Border Protection, where importers sought a preliminary injunction to halt liquidation of entries subject to IEEPA tariffs. The government's brief stated that, should the Supreme Court find the tariffs unlawful, the Court of International Trade (CIT) has authority to order reliquidation and refunds with interest—and the government would not oppose such relief.

That position, tax practitioners and legal scholars say, effectively forces the Supreme Court to confront the full financial consequences of invalidating the tariffs, potentially making the justices reluctant to strike down the tariffs even if they find them legally questionable.

The Lower Court Reasoning

The CIT's May 28, 2025, decision in V.O.S. Selections, Inc. v. Trump found the "Liberation Day" tariffs unlawful in a unanimous three-judge panel opinion. Judge Claire R. Kelly, writing for the court, held that IEEPA requires an "unusual and extraordinary threat" to national security, foreign policy, or the economy. The court found that "long-standing trade imbalances and foreign manufacturing reliance" do not meet that threshold, as these conditions existed for decades before the tariff declaration.

The CIT's reasoning focused on IEEPA's text: the statute authorizes the president to address threats that are both "unusual" and "extraordinary." The court held that routine economic conditions, even if problematic, cannot be transformed into emergencies simply by presidential declaration. Judge Kelly wrote that accepting the government's position would "effectively eliminate any meaningful limit on presidential authority under IEEPA," allowing the executive to declare any economic condition an emergency.

The Federal Circuit's August 29, 2025, decision affirmed the CIT in a 7-4 split. Judge Timothy B. Dyk, writing for the majority, went further than the CIT, addressing the nondelegation doctrine question. The majority held that even if IEEPA could be read to authorize tariffs, such authorization would violate the Constitution's separation of powers by delegating legislative authority to the executive without an "intelligible principle" to guide the president's discretion.

The Federal Circuit majority specifically rejected the government's argument that IEEPA's "unusual and extraordinary threat" language provides sufficient guidance. Judge Dyk wrote that the phrase is "so vague as to be meaningless" when applied to economic conditions, effectively giving the president "unbounded discretion to impose tariffs on any basis he deems an economic threat."

The four dissenting judges, led by Chief Judge Kimberly A. Moore, argued that IEEPA's emergency declaration requirement, combined with congressional oversight mechanisms, provides adequate constraints. The dissent emphasized that Congress has never attempted to limit IEEPA's scope through legislation, suggesting implicit approval of broad executive discretion.

The Refunds Concession

The government's concession on refunds came in response to importers' request for a preliminary injunction. Importers argued that once entries are liquidated by Customs, they would lose the ability to seek refunds. The government's response was striking: it acknowledged that the CIT has authority to order reliquidation and refunds, stated it would not oppose such relief, and argued that this authority eliminates any irreparable harm from denying the injunction.

That position effectively removed refunds as a contested issue, leaving only the authorization question for the Supreme Court. But by conceding refunds, the government also made the financial stakes of invalidation explicit: if the Court finds the tariffs unlawful, the government has committed to refunding what could be $750 billion to $1 trillion in collected tariffs, plus interest.

Costco Wholesale Corp., which has filed for refunds of tariffs it estimates at over $200 million, is among the largest companies seeking relief. Revlon Inc., Bumble Bee Foods LLC, and thousands of other importers have similar claims pending. The CIT has stayed all new cases pending the Supreme Court's decision, but existing claims represent potential liabilities that could strain the Treasury's ability to pay.

The Strategic Calculus

Commentators are divided on whether the government's refunds concession was strategic. Some argue it was a necessary legal position: the government could not credibly argue that refunds would be unavailable if tariffs are found unlawful. Others see it as a deliberate move to raise the stakes for the Supreme Court.

"If the Court invalidates the tariffs, it will be blamed for triggering massive refunds and potential financial market disruption," said a tax attorney who represents importers, speaking on condition of anonymity. "By conceding refunds, the government has made the financial consequences of invalidation explicit, which may make the justices more reluctant to strike down the tariffs even if they have legal doubts."

The financial implications are substantial. The tariffs have been collected for over a year, with revenue embedded in the federal budget. Refunding $750 billion to $1 trillion would require either new borrowing, tax increases, or spending cuts—all politically difficult options. The Treasury Department has not disclosed how it would finance such refunds, but the Congressional Budget Office has estimated that refunds at the high end of the range could require emergency appropriations.

The Supreme Court's decision, expected after oral arguments scheduled for January 9, 2026, will determine not only the legality of the tariffs but also whether the government's refunds concession was a strategic success. If the Court upholds the tariffs despite legal questions, critics will argue that financial pressure influenced the decision. If the Court invalidates the tariffs, it will face criticism for triggering massive refunds and potential economic disruption.

The consolidated cases, Learning Resources v. Trump and Trump v. V.O.S. Selections, Inc., present the Court with a choice: uphold tariffs that lower courts found unlawful, or invalidate them and trigger refunds that could reach $1 trillion. The government's refunds concession has ensured that either outcome will have significant consequences.