Letters of Intent

Pankaj Raval (00:00)
Welcome back to Letters of Intent. I am Pankaj Raval, founder of Carbon Law Group, and today I'm joined by my co-host.

Sahil (00:06)
Sahil Chaudry, I'm corporate attorney here at Carbon Law Group.

Pankaj Raval (00:09)
is the show where we break down the legal and business issues that matter most to founders, operators, and growing companies.

Sahil (00:15)
Today we're talking about the new CAPE tariff refund process, what it is, how we got here, and what comes next.

Pankaj Raval (00:22)
So if you're an importer, working customs, or just want to understand why this is suddenly such a big deal, this episode is just for you.

Sahil (00:29)
So, Pankaj, let's start with the basics. What exactly is CAPE?

Pankaj Raval (00:33)
CAPE is the new refund process being used to handle certain tariff refund claims. simple terms, it's the government's way of giving importers a path to recovered duties that may no longer be valid after the recent legal developments. And if people have been listening to the show for a while, you guys remember, we had talked about these tariffs a while back and the kind of the chaos.

that they're causing around the world. So this is kind of coming to a culmination right here today this new CAPE process.

Sahil (00:59)
Absolutely. I know my own family along with other families who are importers of goods are going to need this right now. There are a ton of small businesses, especially in L.A., where we're at.

who are importers of record. And we're really hoping that this was going to happen. So it's finally here. And if you're a small business and you are an importer, you need to take advantage of this. And the important thing is it's not automatic. You will need to take proactive steps and apply for this.

Pankaj Raval (01:27)
Exactly, Sahil. So for a lot of businesses, this could mean significant And that's why there's so much attention on this right now. I think one hundred and sixty eight billion dollars or more is going to be allocated for refunds. I think probably more than that, because the government has claimed have collected more than six hundred sixty eight billion dollars. So it's going to be really interesting to see how much actually money is at stake here.

Sahil (01:48)
So, Pankaj, let's back up a little bit because the tariffs were in the news, they were in the headlines for so long. But what caused this reversal? How did we get to this point where now the government is being forced to offer refunds?

Pankaj Raval (02:01)
Yeah, so, it really starts with the tariff is something we covered in our podcast a while back. And the tariffs were challenged in court. And the Trump to argue that these were kind of emergency tariffs that were required on the IEPA. And the Supreme Court said, no, actually, they're not. They're not emergency tariffs. These are attacks.

And Congress is the only entity or government body that's allowed to levy taxes. did not authorize tariffs in the government had imposed them.

Sahil (02:30)
So that raises the obvious next question. If the tariffs were unlawful, how do businesses get their money back?

Pankaj Raval (02:36)
Well, I'll tell you, it's not just, a hope and a prayer. You've got to take significant steps to get that money back. The government has never been one to you back the money without, you asking for it. I guess maybe your tax refund maybe one way to get But generally speaking, you've got to make on top of it and what you're owed, this government, I don't think they're going to be quick to release the have

tried to make over the

Sahil (02:59)
Yeah,

Well, and I think what we're seeing is the administrative response to the court ruling. The court effectively says, hey, these were unlawful tariffs, but it didn't provide a specific mechanism for how the refunds were going to be issued. So this is the government's response to the ruling. This is an administrative response.

Pankaj Raval (03:17)
Absolutely, absolutely. that's why this CAPE system was set up. The government surprisingly actually, did set up the system and is actually, you know, I have a feeling probably has to do somewhat midterms coming around and they don't want to create too much badwill or ill will, so maybe that's why they hurrying to this done. But yeah, they did actually create a system to process these refunds called the CAPE system.

Sahil (03:39)
So, okay, who should actually be paying attention to this? Because if you're a retail consumer and you were buying a shirt and you a price hike, you can't get a refund there. So the people who really are paying attention to this are the importers, right?

Pankaj Raval (03:55)
Right, right exactly.

So the importers of and foremost, Sahil, if your company paid the tariffs, you may be though your company is the one entitled to the refund.

Sahil (04:03)
Yeah, it's not the consumer at the end of the chain. So if you are a consumer of goods, I wouldn't hold your breath that the companies you've bought goods from are going to be giving you a refund anytime soon. But the companies themselves who are importers are going to get a refund as long as they follow the rules and apply.

Pankaj Raval (04:20)
So correct Sahil, this is generally an importer issue, not a consumer rebate. It matters for CFOs, in-house counsel, trade compliance teams.

and custom brokers.

Sahil (04:30)
Exactly. So if a company misses the filing window or doesn't document things correctly, it could lose the refund. And that's why we're highlighting this because we know if you're in our audience, if you're in our Carbon community, you're likely a CFO, in-house counsel. You're responsible for making this happen. And so you do not want to miss the filing window.

Pankaj Raval (04:49)
Exactly, exactly. That means, yeah, with an issue like this, that means a lot of money can be left on the table.

Sahil (04:54)
so let's break it down and get tactical. Pankaj, walk us through the actual process.

Pankaj Raval (04:58)
So, Sahil a company identifies the entries that may qualify, confirms eligibility, and submits the claim through the CAPE system. That filing has to include the correct entry data and be tied to the right importer.

Sahil (05:08)
Okay, so it's not just click a button and get paid kind of thing.

Pankaj Raval (05:12)
Definitely

not. not. It's an administrative process which means accuracy matters. If the filing is incomplete or the entry doesn't qualify, the refund can be delayed or even denied.

Sahil (05:20)
And I imagine this gets even more complicated if the company uses a broker.

Pankaj Raval (05:24)
That's right, Sahil. It can. That's why companies need to coordinate internally and make sure they know who is responsible for what. And if they're hiring someone to help them with this process, make sure that they know they've done this, they're familiar with the system and can navigate it easily.

Sahil (05:37)
So what are the limitations people should know about?

Pankaj Raval (05:40)
So the rollout right now is limited. Not everyone can apply at this moment not every entry qualifies. The program is being implemented in phases. Some entries are excluded and certain claims may still need go a different path.

Sahil (05:51)
So the word refund sounds broad, but the actual eligibility rules are narrower.

Pankaj Raval (05:56)
That is true. That is true. That's one of the biggest takeaways. A lot of headlines make it sound universal, but the real world process is much more specific.

Sahil (06:03)
And then there's also the question of timing. When exactly did you pay your tariffs? Yeah, there are gonna be different rates that we're applying at different times. And have to ensure you're not missing this window for the refund.

Pankaj Raval (06:07)
Yes.

Absolutely. Yeah. Even if a claim is eligible, the company still has to get it filed correctly and watch for any deadlines or government processing delays.

Sahil (06:20)
Okay, so what happens after this first wave of filings?

Pankaj Raval (06:24)
So I think we'll three things, Sahil. First, the system itself will be tested under volume. Second, there may be disputes over who qualifies and how much is owed. Third, companies will have to decide whether CAPE is enough or whether they need to preserve other legal options. Who knows, whether CAPE will provide the total refunds partial. I'm sure there's gonna be a lot of disputes, probably a lot of work for lawyers to sort all this out.

Sahil (06:44)
That's right. So this is the beginning. This is not the end. This is just the opening act of the tariff refunds.

Pankaj Raval (06:51)
Absolutely, absolutely. I don't anticipate this government's gonna make it that easy to get the money back. They were tooting their horn for so long about collecting so much money in tariffs, they gotta give it all So, it's gonna be interesting to see how this all plays out. And this is just the start of the implementation phase. implementation is where kind of the real world friction shows up.

Sahil (07:09)
This really reminds me of, there's a story about, I think it's a Buddhist story monk who's basically, to keep this short, watching events happen in his village. Someone breaks his arm and somebody says, how bad? And then there's a draft and somebody says, oh, how good? And there are a series of events where a lot of things that appear bad at first or good at first will change over time. So,

Pankaj Raval (07:20)
huh.

Sahil (07:32)
I think it's very interesting. Politics, law and business have all taught me one thing, which is not to rush to any kind of judgment because we don't know what's going to happen next.

And so right now the problem in front of us is that many importers have paid this tariff and they deserve to get that refund. And so we want to be sure that you are implementing this or you're properly filling everything out because this is where legal headlines turn into business headaches. All of sudden, the Supreme Court has kind of unleashed this ruling

importers and on the government. And now this is a very important business consideration. While you're running your business, you need someone who's committed to compliance and regulation and someone who's able to actually do the administrative work of filling this out. So it doesn't become a headache that distracts you from your business.

Pankaj Raval (08:20)
That's exactly right, Sahil. And it's also interesting to know market that's evolved around read about. I think it was a Wall Street Journal and New York Times a while back that actually a lot of people are selling their claims to refunds at a discount to parties. So there's a whole market around this where now third parties hold claims to rebates, whether they're to be able to execute on those or not. Potentially, yes, but

Sahil (08:32)
Wow.

Pankaj Raval (08:41)
it's an interesting market too that's evolved and there is a secondary market out there. If you're thinking about, you know, I don't want to go through this. This whole process of trying to get my rebate. There could be an opportunity to even sell your rebate at a discount to someone else and get that money now. So strapped for cash, something to think about as well.

Sahil (08:56)
It's very interesting, very similar to like a debt collection model. Like, hey, we'll collect the debt, but you get a discount. Very interesting. Yeah, so well, okay, if you're a business listing right now, practically speaking, what should you do? What's the first step?

Pankaj Raval (08:59)
Right.

Absolutely.

I think if you're a business that imports goods and you're unsure of whether you qualify, now's the time to review your entries and your refund strategy and create a kind of comprehensive plan to, and understand that the CAPE system to see how you could qualify and what the application process looks like.

Sahil (09:23)
and don't assume someone else has it handled.

Pankaj Raval (09:26)
Absolutely, recognize that also this is new. This is new to everyone, right? So if anyone knows like, yeah, I know exactly what to do. They're probably lying because, there's a lot of nuances here. We work with international attorneys to at our firm, we could recommend if people are looking for other assistance on this. But, we're going to be probably interviewing some international trade attorneys in the future to talk a little bit more about what this refund system looks like.

But definitely make sure that you are being proactive here because there is a time period to act and you do not want to miss that window.

Sahil (09:53)
So the smart move is don't treat this just like a news headline you're going to scream at. This is not just a news story. This has practical implications for your business. This is real money and you need to go after it.

Pankaj Raval (10:04)
Absolutely. And with that said, this is Letters of Intent. Thank you all for listening. Thank you all for supporting We're now, I think, at our 60th or more episode. This has been a fun journey. We've been learning a lot. We hope you guys all have been learning a lot. Please like, follow, share for more. We're really trying to spread the word providing insight Sahil and I are learning all the time. This is an opportunity for us to learn and hopefully everyone listening is learning as well. So until next time.

Please continue to do deals and take risks and chase those dreams.

Sahil (10:34)
Great.