Jamie Pentagulio

With ongoing uncertainty surrounding tariffs, we wanted to lay out the potential impacts of the court ruling on IEEPA tariffs and how that is related to LIFO. In this blog, we are breaking down the tariff statutory authorities, tariff rates & revenues by statutory authority, how LIFO tax benefits are created, the August 2025 federal court ruling on IEEPA tariffs and what happens if the IEEPA tariffs are deemed invalid following the appeal. As always, please contact us if you have any LIFO related questions or needs, tariff related or otherwise.

Tariff statutory authorities

The following tariff authorities derive from Congress’s constitutional power to regulate commerce (Article I, Section 8), which have been delegated to the executive branch:

  • Most-favored Nation (MFN) tariffs of the Tariff Act of 1930 (Smoot-Hawley Act, 19 U.S.C. §§ 1202 et seq.) & Trade Act of 1974 (19 U.S.C. §§ 2101 et seq.): When a country joins the WTO or negotiates bilateral agreements, it commits to MFN treatment. In the U.S., imports from WTO members (over 160 countries) automatically receive MFN rates unless exceptions apply. MFN tariffs are the “baseline” or standard rates applied to goods. Authorizes the president to negotiate and implement trade agreements incorporating MFN principles. It also allows for MFN extensions to non-WTO countries via bilateral deals and includes provisions for suspending MFN (e.g., Section 406 for market disruption). For example, if the U.S. applies a 16.5% tariff on cotton shirts from China (a WTO member without a free trade agreement), that same rate must apply to all other WTO members without preferential deals. These rates are listed in the Harmonized Tariff Schedule of the United States (HTSUS) under “Column 1” (General Rate of Duty). Non-MFN countries (e.g., Cuba, North Korea) face higher “Column 2” rates, often 20-50% or more.
  • International Emergency Economic Powers Act or IEEPA (50 U.S.C. §§ 1701–1707): Grants the president broad authority to regulate international economic transactions during a declared national emergency in response to an “unusual and extraordinary threat” to U.S. national security, foreign policy, or economy, originating substantially outside the United States. This delegation stems from Congress’s constitutional power to regulate commerce with foreign nations (Article I, Section 8), with specific powers outlined for the executive to act swiftly in emergencies.
  • Section 301 of the Trade Act of 1974 (19 U.S.C. § 2411): This authorizes tariffs or restrictions on imports from countries engaging in “unreasonable or discriminatory” practices that burden U.S. commerce, after an investigation by the U.S. Trade Representative (USTR) with public input. Trump relied on it extensively in his first term for tariffs on China (up to 25% on $300 billion in goods) over intellectual property theft and unfair practices. It could be used to target reciprocal tariffs on countries with high trade barriers, like the EU (10% on vehicles) or India (70% on vehicles). Compared to IEEPA, it demands a formal finding of unfair practices and is subject to WTO challenges, but it allows indefinite tariffs without an emergency declaration.
  • Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. § 1862): This allows the president to “adjust imports” (including imposing tariffs) if they threaten national security, following a Department of Commerce investigation and report (typically within 270 days, with public hearings). Trump used this during his first term for 25% tariffs on steel and 10% on aluminum, and in his second term, he expanded it to 50% on steel/aluminum/copper and 25% on imported cars. It could be broadened to cover more sectors (e.g., semiconductors or pharmaceuticals) by framing trade deficits or supply chain dependencies as security risks. Unlike IEEPA, it requires evidence of impairment to U.S. national security and is not unlimited in scope, but it enables high rates without congressional approval post-investigation.
Tariff rates & revenues by statutory authority

To highlight tariff rates & revenues by statutory authority, we’ve broken down 2024 calendar year + 2025 year to date tariff revenues on U.S. imports by statutory authority:

  • 2025 Year to date (01/01/25 – 09/06/25): Effective tariff rate of 17% – 18%. Receipts are as follows:
    • MFN: $83B
    • IEEPA: $53B
    • Section 301: $25B
    • Section 232: $22B
    • Totals: $183B
  • 2024 calendar year (01/01/24 – 12/31/24): Effective tariff rate of 2.5%. Receipts are as follows
    • Section 301: $38B
    • MFN: $37B
    • Section 232: $2B
    • Totals: $77B
How are LIFO tax benefits created?

LIFO creates a tax benefit by transferring inflationary component of inventory costs from the balance sheet (ending inventory) to the income statement (cost of goods sold). LIFO will create more tax benefits when inflation is high and less when inflation is low. That’s why times like covid and 2025 are ideal years to elect. A simplified current year LIFO tax benefit formula is to multiply prior year end inventory balance by current year end inflation rate. Most companies using LIFO measure inflation over a one-year period to calculate their current year end inflation rate. For example, a company making a 2025 LIFO election with a December year end would measure their current year inflation rate by double extending December 2025 quantities on hand by their 12/31/25 & 12/31/24 unit costs. The 17-18% effective tariff rate as a result of new policies implemented by the Trump administration in 2025 is 6-7x higher than the 2.5% effective tariff rate that was in place during the Biden administration, meaning the 2025 LIFO tax benefits will likely be much higher than normal!

August 2025 federal court ruling on IEEPA tariffs

The Federal Circuit appeals court ruled that President Trump unlawfully invoked the IEEPA to impose sweeping tariffs of up to 145% on dozens of U.S. trade partners. The appeals court said its ruling will not go into effect until at least October 14th in order to allow the Justice Department time to seek the Supreme Court’s review. The trump administration wants the Supreme Court to decide whether a federal emergency powers law called the International Emergency Economic Powers Act, or IEEPA, authorizes the tariffs imposed by Trump and whether the law unconstitutionally delegates legislative authority to the president. It could be weeks before the high court decides whether to weigh in on the legality of President Trump’s tariffs and, if it decides to do so, months even before a decision is handed down. The IEEPA tariffs are to remain in effect until the Supreme Court hears the Trump administration’s appeal. What happens if the IEEPA tariffs are deemed invalid following the appeal? This would mean all IEEPA tariffs charged after October 14, 2025, will cease to be collected or refunded. There is uncertainty regarding whether IEEPA tariffs charged prior to October 14, 2025, being refundable or not, depending on how the Supreme Court rules. Non-IEEPA tariffs will remain in effect regardless of the IEEPA case outcome. The Trump administration has signaled flexibility in increasing or adding Sections 301, 232 and MFN tariffs to make up for revenues potentially lost from IEEPA tariffs.

Key takeaways on 2025 tariffs and LIFO tax benefits

Tariffs

  • Supreme Court is slated to hear arguments in November 2025, with a decision likely expected early in 2026. Until then, all IEEPA tariffs remain in effect under a temporary stay.
  • If IEEPA tariffs are deemed invalid, the Trump administration will presumably seek to replace them by relying more heavily on Section 301 (unfair trade practices) and Section 232 (national security).
  • According to trade analysts, maintaining the current tariff rate would require the following:
    • Expanding Section 232 tariffs to new sectors like semiconductors and pharmaceuticals
    • Increasing rates on existing categories like steel, autos and electronics.

LIFO tax benefits

  • Higher than normal tax benefits will likely be available for companies electing LIFO for their 2025 year-end, regardless of the Supreme Court ruling for two reasons:
    • On a combined basis, existing 2025 MFN and Sections 301 & 232 tariff revenues are much higher than 2024
    • Trump administration will likely add or increase Sections 301 & 232 tariffs if IEEPA tariffs are deemed invalid, thereby replacing lost IEEPAS tariff revenues and restoring effective tariff rates closer to their 17-18% levels

We’ve done exclusively LIFO for over three decades and are always happy to share our expertise. Obtain a complimentary LIFO election benefit analysis to see exactly what you, or your client, would gain by electing LIFO for the 2025 year-end here.

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