New York Budget Law May Discourage Institutional Ownership of Single and Two-Family Homes
The New York State budget for fiscal year 2025-2026 placed restrictions on certain institutional investors owning 10 or more one and two-family homes. These restrictions and tax changes may alter the economics of institutional investing in the single and two-family housing market.
A covered institutional real estate investor is “an entity or combined group that: (i) owns ten or more single-family residences and/or two-family residences; (ii) manages or receives funds pooled from investors and acts as a fiduciary with respect to one or more investors; and (iii) has fifty million dollars or more in net value or assets under management on any day during the taxable year.”
An entity is considered owning a single-family or two-family residence if it owns the property directly or indirectly owns 10% or more of the residence. Covered entities do not include organizations described in Internal Revenue Code section 501(c) (3) and exempt from tax under IRC section 501(a). Land banks and community land trusts are excluded from the definition of a “covered entity.”
There are non-tax restrictions on institutional investors seeking to purchase single and two-family homes. As of July 1, 2025, it will be unlawful for such purchasers to acquire or offer to purchase or acquire any interest in a one or two-family home unless the property has been listed for sale publicly for at least 90 days. Also, the 90-day period restarts if the asking price changes, and the penalty for violating this provision may be up to $250,000.
Regarding tax changes, New York has amended its tax laws to prevent institutional investors from claiming depreciation and interest deductions on single-family and two-family homes when filing their New York tax returns, even though these deductions will still be available on federal tax returns. This change applies to institutional investors leasing the homes to residents; investors holding these properties in inventory for resale cannot claim depreciation on those assets.
The new law provides that interest (not depreciation) deductions will be available with respect to interest paid or accrued in the taxable year. These deductions apply when the property is sold to an individual who will use it as their principal residence or to a nonprofit organization focused on creating, developing, or preserving affordable housing.
While the 90-day restriction on purchasing one and two-family homes is effective July 1, 2025, the tax provisions are effective for tax years beginning on or after Jan. 1, 2025.
Several issues in this legislation remain unclear:
1.
Is the ownership of 10 one and two-family homes limited to homes in New York, or if an institution owns nine such homes in New Jersey and only one in New York, would it be subject to these rules?
2.
Will the disallowance of interest and depreciation deductions apply only to New York properties, or will auditors make an “above the line” adjustment disallowing interest and depreciation deductions for properties located outside New York when arriving at taxable income as required to be reported to the U.S. Treasury Department?
3.
Will the disallowance of depreciation and interest expense be applied to properties acquired before Jan. 1, 2025?
A Tie Goes to the Runner, a Common Law Extravaganza, and the Administration Gets a Break – SCOTUS Today
Today, an evenly divided 4–4 U.S. Supreme Court, with Justice Barrett having recused herself, decided in Oklahoma Statewide Charter School Board v. Drummond to leave in place the holding of the Oklahoma Supreme Court blocking an effort in that state to create the nation’s first faith-based charter school.
This tie leaves open the question of whether states with taxpayer-funded charter school programs are constitutionally required to incorporate religious institutions. The one-line per curiam order gives no indication of how the Justices voted in the case, although the Chief Justice’s questioning during the oral argument—noting that governmental oversight of a charter school is a far greater connection to religion than merely appropriating money from which the school benefits—suggests that he joined the three jurisprudential liberals.
Justice Barrett’s recusal is attributed to her friendship with an advisor to the Catholic school at the center of the case, and leaves open the question of whether she would participate in a future case raising the establishment issue. Note that both the Chief Justice and Justice Barrett are practicing Catholics. We have some evidence of what the Chief Justice thinks with respect to the involvement of government in religious schools, but we don’t yet know Justice Barrett’s view.
Kousisis v. United States, on the other hand, was anything but a tie. All the Justices agreed (though Justices Thomas, Gorsuch, and Sotomayor concurred in whole or in part) with the opinion of Justice Barrett that a defendant who induces a victim to enter into a transaction under materially false pretenses may be convicted of federal wire fraud even if the defendant did not seek to cause, and did not cause, economic loss to the victim. Here, the petitioners gained a Pennsylvania public painting contract by falsely representing that they would work with a qualified disadvantaged business. This lie, however, did not cost the Commonwealth of Pennsylvania anything extra. The Supreme Court held that to prove wire fraud, the crime charged, a defendant must be shown to have “engaged in deception and had money or property as an object of his fraud.” However, it doesn’t follow that a federal fraud conviction cannot stand unless the defendant sought to cause the victim net pecuniary loss.
In a tour-de-force analysis of statute, precedent, and, particularly, common law, Justice Barrett explained that, besides the fact that the statute in question does not mention economic loss, the essence of actionable fraudulent-inducement theory is that a victim who might not have suffered any monetary loss is nevertheless injured by getting something other than what he or she has bargained for. In this case, the Commonwealth lost the benefit of achieving its policy aim of the inclusion of disadvantaged businesses. This theory is consistent with the statutory text, the Court’s precedents, and, most of all, a lengthy common law history.
The Barrett majority opinion and Gorsuch concurrence are particularly well written. Both ought to be taught in law schools with respect to the sources of law as well as judicial process and decision-making.
Finally, the Supreme Court has just issued an order with respect to presidential power over the tenure of members of multi-member federal agencies, holding as follows:
The Government has applied for a stay of orders from the District Court for the District of Columbia enjoining the President’s removal of a member of the National Labor Relations Board (NLRB) and a member of the Merit Systems Protection Board (MSPB), respectively. The President is prohibited by statute from removing these officers except for cause, and no qualifying cause was given. See 29 U. S. C. §153(a); 5 U. S. C. §1202(d). The application for stay presented to THE CHIEF JUSTICE and by him referred to the Court is granted. Because the Constitution vests the executive power in the President, see Art. II, §1, cl. 1, he may remove without cause executive officers who exercise that power on his behalf, subject to narrow exceptions recognized by our precedents, see Seila Law LLC v. Consumer Financial Protection Bureau, 591 U. S. 197, 215−218 (2020). The stay reflects our judgment that the Government is likely to show that both the NLRB and MSPB exercise considerable executive power. But we do not ultimately decide in this posture whether the NLRB or MSPB falls within such a recognized exception.”
Not only does this order presage the result with respect to the NLRB and MSPB, but it opens for examination whether the Federal Reserve Board should be treated similarly. The government has argued that the Federal Reserve is an exceptional agency, toward which the president’s power should be limited. The question now is whether the government will stick by this concession.
Department of Justice Tariff Enforcement Likely to Surge After Tariff Increases and the Administration’s Increased Focus on Protecting Domestic Business
A serious step up in civil and criminal enforcement of customs laws, including tariff evasion, is imminent. In a May 12 memorandum, the Department of Justice’s new Chief of the Criminal Division, Matthew Galeotti, counted as one of the “most urgent” threats to the country “[t]rade and customs fraud, including tariff evasion.” Earlier in the Administration, in a February 2025 speech, Michael Granston, Deputy Assistant Attorney General for the DOJ’s Commercial Litigation Branch identified, as a key example of new enforcement activity, efforts to enforce payment of customs duties on imported goods and reiterated that enforcement against “illegal foreign trade practices” would be a priority for the Administration.
Per the recent Galeotti Memo, “[t]rade and customs fraudsters, including those who commit tariff evasion, seek to circumvent the rules and regulations that protect American consumers and undermine the Administration’s efforts to create jobs and increase investment in the United States. Prosecuting such frauds will ensure that American businesses are competing on a level playing field in global trade and commerce.”
The Galeotti Memo also added tariff evasion to the list of areas subject to DOJ’s Whistleblower Program, which offers monetary awards in exchange for original information leading to successful recoveries by the government.
To fully understand the broad scope of potential civil and criminal liability through the tariff process, it is necessary to have a basic understanding of the mechanics of the process, as even early steps may have a significant impact on the likelihood and outcome of a civil or criminal enforcement action and the possible penalties that could result.
Tariff Increases Under the New Administration
Tariffs imposed, or likely to be imposed under the new Administration, will be the highest in over a century, providing strong incentives for importers to avoid paying the increased costs. President Trump initially raised baseline tariffs on Chinese imports to 145%, which have since been lowered to 30%. Trump also imposed a 25% tariff on Canada and Mexico, but later granted indefinite exemptions for goods compliant with the USMCA, the United States–Mexico–Canada Agreement, which replaced NAFTA. The Administration also subsequently added a 25% tariff on steel, aluminum, and automobiles from all countries.
On April 2, a day President Trump called “Liberation Day,” the Administration announced a minimum 10% tariff on all U.S. imports, effective April 5, and higher tariffs—dubbed “reciprocal tariffs” —on imports from 57 countries. These reciprocal tariffs, ranging from 11% to 50%, were scheduled to take effect on April 9, but were almost immediately suspended for 90 days for all countries except China. The 10% minimum tariff on all imports and the 25% sector-specific tariffs remain in effect.
Tariff Collections and Procedures
A tariff is a duty imposed by the government on imported goods and is paid by the importer. Before goods are shipped to the U.S., by sea, air, rail or truck, importers file paperwork electronically with U.S. Customs and Border Protection (“CBP”) with, among other things, details about the imported goods, including valuation, classification (by category of item under the Harmonized Tariff Schedule (HTS)), and country of origin. Once the shipment arrives, CBP customs inspectors review the paperwork before clearing the goods for release. Agents perform spot checks and random inspections to ensure the shipment contains what it is supposed to.
After the goods are cleared for release, the cargo is often moved to a warehouse for storage. The importer, directly or through a customs broker, then files additional paperwork with CBP setting forth detailed information about the shipment—again including country of origin, valuation, and classification within the tariff schedule—on a CBP Form 7501. This form includes an express representation that the information provided is true and correct. CBP relies on this information to compute the amount of tariffs due. All of the documentation and information provided to CBP later becomes critical to any government investigation.
The importer then has 10 or 30 days to pay its tariff bill. The importer can pay CBP directly or pay its customs broker who will in turn pay CBP. CBP officials spot-check the payments and may later audit some transactions to ensure proper duties were paid.
Traditional Customs Enforcement
The government’s principle enforcement mechanism for tariff evasion has historically been through 19 U.S.C. § 1592. Section 1592 authorizes CBP to not only recover tariffs underpaid, but also impose penalties that start at two times the amount underpaid up to the domestic value of the merchandise, depending on the importer’s level of culpability. Increasing penalties under the statute apply to violations ranging from negligence, to gross negligence, and ultimately to fraud. Although private parties can file allegations of customs violations with CBP (e.g., via CBP’s e-allegations portal), only CBP can bring an enforcement action under Section 1592.
Following a CBP investigation, and through procedures set forth in Section 1592, CBP may issue a “penalty claim” against the alleged violator. CBP must provide the importer with notice and an opportunity to object before issuing a penalty claim and a reasonable opportunity after the claim to seek remission or mitigation of the monetary penalty. Representations by the importer during this process may also be important in a subsequent government investigation.
At the conclusion of these proceedings, CBP must issue a written statement setting forth its final determination and the findings of fact and conclusions of law upon which its penalty determination is based. Review of this determination by either party occurs in the Court of International Trade—an Article III court tasked with hearing disputes primarily concerning tariffs and import duties—and ultimately on appeal to the United States Court of Appeals for the Federal Circuit.
Common Schemes to Avoid Paying Tariffs
As tariffs increase, importers and businesses dependent on imported goods will increasingly look for ways to avoid or minimize tariff payments and other customs-related costs. Companies purchasing imported goods could also be liable for substantial civil penalties, or even criminal law, for customs violations, including potentially for misconduct or false statements by suppliers, sourcing agents, and other third parties involved in the importing of goods. To avoid exposure to these violations, it is necessary to be aware of the more common tariff evasion practices. These include the following:
Valuation: Tariffs are typically calculated as a percentage of the value of the imported goods. Importers may intentionally understate the value of the imported goods when declaring them to customs officers, whether in formal CBP forms or via supporting documents, such as purchase or manufacturing agreements.
Country of Origin: Per federal regulations, the “country of origin” of imported goods is where the goods were manufactured, grown or underwent “substantial transformation” into the final product being imported. Because tariffs depend heavily upon the country of origin of the imported goods, importers may try to route goods from a high-tariff country through a lower-tariff country on the way to the United States, falsely presenting the goods as originating from the lower-tariff country. This practice is known as “trans-shipment.”
Classification: Tariffs in the U.S. are based upon categories classified under the Harmonized Tariff Schedule. Importers may be tempted to misclassify imported goods by moving them from a higher tariff category to a lower or exempted tariff category, thereby lowering the tariff amount due.
As described below, these misrepresentations may result in serious civil or criminal consequences, not only for the importer directly involved, but also potentially for companies and individuals buying the goods or otherwise involved in the transactions.
Civil False Claims Act Enforcement
Recent statements by the Department of Justice suggests that the government will increasingly seek to use the False Claims Act (“FCA”) to punish and deter tariff violations. In general terms, the FCA imposes severe civil monetary penalties on any person who knowingly submits, or causes another to submit, a false claim to the government, or knowingly makes a false record or statement to get a false claim paid by the government. Most relevant to tariff evasion is a section of the FCA known as the “reverse false claims” provision, which provides liability where one acts improperly to avoid paying money, e.g., tariffs or other customs duties, to the government.
The FCA is to Section 1592 customs enforcement what a slingshot is to a machine gun. First, penalties under the FCA can be immense. If found liable, a defendant can be ordered to pay three times the amount of underpaid tariffs, plus civil penalties of up to $28,619 per false claim. Second, unlike 19 U.S.C. 1592, private parties that act as whistleblowers—known as “relators”—can bring a case, known as a qui tam, under the FCA against an importer for tariff evasion.
Whistleblowers who bring a successful qui tam action receive a portion of the recovered funds—up to 25% if the government intervenes, and up to 30% if the government does not, and can also recover attorneys’ fees and expenses. The incentive for reporting customs violations is therefore substantial. Whistleblower claims may be made not only by a company’s own employees, but also by competitors who stand to gain financially both from the whistleblower incentive award and from eliminating the competition.
Third, DOJ has at its disposal far more powerful and intrusive investigative tools than what is available to CBP under Section 1592. These include, in the civil context, civil investigative demands (CIDs) to compel the production of records and testimony and, in the criminal context, search warrants and the full force of a federal grand jury.
Criminal Enforcement of Tariff Violations
As the May 12 Galeotti Memo makes clear, the DOJ has also set as a priority the criminal enforcement of customs and tariffs violations. In pursuing criminal charges, the government has a wide range of criminal statutes that may be applied. Listed below are just some of the criminal statutes that could be applied to tariff evasion schemes:
Criminal False Claims Act, 18 U.S.C. § 287. This statute makes it a crime to make or present to the government any claim knowing that claim to be false, fictitious, or fraudulent. The statute also makes the knowing avoidance of an obligation to the government, e.g., tariffs or import duties, a crime. Punishable by up to five years’ imprisonment.
Wire Fraud and Conspiracy, 18 U.S.C. §§ 1343 & 1349. Wire fraud is a far reaching statute that could, if applied, criminalize nearly any transaction that involves fraud or deceit, and utilizes interstate or foreign wire communications. Practically any efforts to avoid paying tariffs through false representations will involve interstate or foreign wire communications. Punishable by up to 20 years’ imprisonment.
International Emergency Economic Powers Act (IEEPA), 50 U.S.C. §§ 1701–1705. The IEEPA grants the President broad authority to regulate economic transactions when there is an unusual and extraordinary threat to the United States that originates, in whole or substantial part, outside the country. Many of the Administration’s recent tariffs were imposed pursuant to the IEEPA, including tariffs on imports from Canada, Mexico, and China. Punishable by up to 20 years’ imprisonment.
False Statements, 18 U.S.C. § 1001. Individuals and corporations can be prosecuted for knowingly making materially false, fictitious, or fraudulent statements or representations to federal authorities. As described above, the tariff process includes the submission of detailed written information to CBP both before goods arrive in the United States and afterwards. False statements charges could be brought against a company and individual employees for intentionally making materially false statements in paperwork submitted to CBP, including as to country-of-origin, valuation, or classification of imported goods. Punishable by up to five years’ imprisonment.
Smuggling, 18 U.S.C. § 545. This statute broadly makes it a crime to knowingly and willfully import merchandise into the U.S. contrary to law. Just last year, DOJ brought smuggling charges against a Miami businessman who evaded nearly $2 million in tariffs on Chinese truck tires by shipping them through countries such as Canada and Malaysia and representing to CBP that the tires originated in those countries. Punishable by up to 20 years’ imprisonment.
Conspiracy, 18 U.S.C. § 371. This federal statute makes it a crime to engage in a conspiracy to commit a crime or defraud the United States. A conspiracy is just an agreement between two or more people to commit a federal crime or defraud the United States. Because most schemes involve a combination of two or more people, this statute is frequently used to prosecute tariff evasion. Punishable by up to 5 years’ imprisonment.
Conclusion
The new highly volatile U.S. tariff regime, together with an increased emphasis on protection of domestic manufacturing and U.S. economic interests, will likely result in substantially increased enforcement, both civil and criminal, in the area of trade and customs fraud, including tariff enforcement. The government has at its disposal powerful tools to pursue customs investigations, including the civil False Claims Act and broad criminal statutes.
The Galeotti Memo and other recent statements by other DOJ officials make clear that tariff evasion will be a priority for the Department. While the first targets of this enforcement will likely be importers directly involved in tariff evasion, recent statements by DOJ and others in the Administration suggest that companies with supply chains relying on imported goods will also be subject to enforcement actions if the evidence shows they were operating without robust policies, procedures, and monitoring to ensure that they are not participating or knowingly benefiting from unlawful conduct. Developing a compliance program to avoid this exposure is neither difficult nor costly, and a small price to pay to avoid later government scrutiny.
Sanctions Reporting Requirements for Insolvency Practitioners – Now in Effect! (UK)
On 14 November 2024, the UK government announced several changes to its existing sanctions regulations via the Sanctions (EU Exit) (Miscellaneous Amendments) (No. 2) Regulations 2024. As of 14 May 2025, by expanding the definition of “relevant firms” subject to financial sanctions reporting, Insolvency Practitioners (“IPs”) are now legally required to adhere to reporting obligations in the UK. The Office of Financial Sanctions Implementation (“OFSI”) have published guidance (the “Guidance”) to support the affected sectors in navigating the new reporting requirements. This blog post will provide an overview of the new reporting requirements for IPs.
What are financial sanctions?
Financial sanctions are economic measures imposed by the government or international bodies to assist the UK in meeting its foreign policy and national security objectives. Sanctions can take various forms; OFSI examples include the freezing of financial assets, restrictions on “designated persons” and wider restrictions on investment and financial services. Financial sanctions apply to all persons within the territory and territorial sea of the UK and to all UK persons. Therefore, all individuals and legal entities who are within or undertake activities within the UK’s territory must comply with the UK financial sanctions that are in force.
A “relevant firm”?
Under financial sanctions regulations, certain types of business (known as “relevant firms”) are subject to sanctions reporting obligations. From 14 May 2025, changes to the definition of “relevant firms” means that IPs will now fall within its remit and must therefore comply with sanctions reporting obligations.
What do the reporting requirements cover?
IPs are now required to report to OFSI as soon as is practicable if they know or have reasonable cause to suspect that:
a person is a “designated person”; or
a person has committed a breach of financial sanctions regulations.
“Designated persons” are set out in the list of all asset freeze targets. If the designated person is a customer of the relevant firm, the IP must also provide OFSI with additional information setting out the nature and amount or quantity of any funds or economic resources held by them for the customer at the time when they first had the relevant knowledge or suspicion.
Under The Russia (Sanctions) (EU Exit) Regulations 2019, IPs are also required to inform OFSI as soon as is practicable if they know or have reasonable cause to suspect that they are holding funds or economic resources for a “prohibited person”, which includes the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation and the Ministry of Finance of the Russian Federation (or people who are controlled by or acting on behalf of these institutions).
What is covered by the new reporting regulations?
The Guidance notes that relevant firms are only required to report to OFSI if the information, knowledge or suspicion arose “in the course of carrying on its business” as an IP. The regulations rely on the definition of IP as set out in section 388 of the Insolvency Act 1986 indicating that, for example, acting as a liquidator, administrator, administrative receiver, supervisor of a voluntary arrangement or a trustee in bankruptcy would all fall within the new regimes remit. The Guidance carves out “business that does not constitute insolvency practitioner business” and provides two examples of when sanctions reporting obligations would not apply: when acting as a receiver in the sale of a property or when conducting an independent business review.
What to include in a report to OFSI
When making a report to OFSI, an IP can use the Compliance Reporting Form found on the Reporting information to OFSI page of the government’s website. The completed form should be sent to [email protected]. The Guidance for IPs notes that the following should be included in a report:
Information or other matter on which the knowledge or suspicion is based;
Any information held about the person or the designated person by which they can be identified; and
If you know or have reasonable cause to suspect that a person is a designated person and that person is a “customer” of your relevant firm, you must also state the nature and amount or quantity of any funds or economic resources held by you for that “customer”.
Going forward
Although the need to report is only likely to impact a small number of appointments, it is important for IPs to ensure that the sanctions reporting requirements are fulfilled because non-compliance with the regime is a criminal offence. Enhanced due diligence checks are likely to be key and for most firms, their compliance teams will already have processes and procedures in place to address these changes.
Ellie Phillips also contributed to this article.
The Trump Administration Announces Trade Agreement With the United Kingdom
On 8 May 2025, US President Donald Trump and UK Prime Minister Kier Starmer announced an agreement on General Terms of the Economic Prosperity Deal (EPD) between the United States and the United Kingdom. Although not a binding agreement, the EPD establishes a framework to enhance economic cooperation and promote reciprocal trade between the two countries, including expansion of US market access to the United Kingdom and elimination of non-tariff barriers on US products. In return, UK imports into the US would avoid higher reciprocal tariffs but would still be subject to a baseline tariff of 10%. The EPD is the first trade framework announced by President Trump since his April 2 “Liberation Day” proclamation imposing significant reciprocal tariffs globally, and the President has indicated that more agreements will follow. (For more background on the reciprocal tariffs announcement, see our 2 April 2025 client alert.)
The EPD has three core objectives:
To encourage and enhance mutually beneficial trade between the United States and the United Kingdom and create quality, high-paying jobs;
Removal of trade and investment barriers; and
Strengthen the “Special Relationship” between the two countries.
The following is a summary of key provisions of the EPD.
Tariff Policy:
Following a “reasonable period of negotiation,” the US and UK intend to reduce applied tariffs on a range of originating goods in “sectors of importance” to both countries. Product-specific tariff commitments are as follows.
The United Kingdom will commit to removing its current 20% tariff on US beef exports, create a duty-free quota of 13,000 metric tons (MT) for US beef exports, and offer a preferential duty-free tariff rate quote (TRQ) of 1.4 billion liters for US ethanol export. Additionally, the United Kingdom will purchase US$10 billion worth of US aircraft.
The United States will reduce the current dutiable rate on UK automotive imports from 27.5% to 10% for a quota of 100,000 vehicle annually (which includes nearly the entire number of UK autos imports in 2024), with accompanying arrangements for parts for such automobiles. The United States will also construct a most favored nation (MFN) rate for UK steel and aluminum and certain derivative products, contingent on UK compliance with US supply chain security requirements. Both countries will also negotiate mutual preferential treatment on pharmaceuticals and pharmaceuticals pending the outcome of an ongoing Section 232 investigation in the United States.
The 10% reciprocal tariff announced on 9 April 2025 remains in effect.
Non-Tariff Elements:
Under the EPD, the United States and United Kingdom will undertake a series of mutual actions and negotiations to improve bilateral market access and strengthen bilateral trade. These efforts include:
Increased cooperation in agricultural markets through compliance with mutually agreed standards and improved export verifications;
Commitment to negotiate digital trade provisions to include financial services in its scope;
Streamlining of customs processes for the movement of goods between the United States and the United Kingdom;
Strengthening cooperation on economic security, including coordination on addressing non-market policies of third countries, investment security measures, export controls, and information & communications technology (ICT) vendor security; and
Reaffirming respective free trade agreements and agreeing to combat evasion schemes and shipment of goods from countries whose practices undermine economic security.
As the first framework agreement to be concluded following President Trump’s reciprocal tariffs pronouncement, the EPD signals how the United States will approach rebalancing of trade with its major economic partners. The EPD indicates a commitment to deepening US-UK economic ties although its provisions remain to be further negotiated, and even if implemented the US would retain the 10% baseline tariff on UK goods.
As negotiations continue between the White House and world leaders, the trade and policy professionals at the firm remain actively involved in this area and are excited to help you navigate the fast-moving trade environment.
Brian J. Hopkins and Jasper G. Noble contributed to this article
GeTtin’ SALTy Episode 53 | GeTtin’ SALTy & Beyond: Exploring Extended Producer Responsibility Laws [Podcast]
In this episode of GeTtin’ SALTy & Beyond, Nikki Dobay is joined by GT attorney Madeline Orlando for a conversation about the emerging landscape of Extended Producer Responsibility (EPR) laws.
EPR laws are State and Local Tax (SALT)-adjacent, as new fees are being imposed on producers of packaging that act a lot like taxes.
Madeline provides an overview of EPR laws, which shift waste management costs from municipalities to producers, focusing on single-use packaging.
The conversation explores the mechanics of these laws, their implications for businesses, and how they intersect with state tax principles.
With five states already adopting EPR laws and others on the brink, Nikki and Madeline discuss the challenges of compliance, fee structures, and potential consumer cost impacts.
They also highlight the broader trend of states adopting progressive environmental policies and the absence of federal intervention.
The episode concludes on a lighter note with a non-tax question about first music formats, revealing nostalgic memories of cassette tapes, 8-tracks, and CDs.
Clawback Enforcement Under SEC Rule 10D-1
With SEC Rule 10D-1 (17 CFR §240.10D-1) now fully in effect[1], 2025 marks the first year that public company boards may be required to actively enforce their clawback policies in response to financial restatements. While most companies completed policy adoption and disclosures in 2023–2024, Rule 10D-1 now enters its enforcement phase. This makes 2025 a critical juncture for governance readiness and ensuring that compensation committees, legal, finance, and human resources teams are fully prepared to implement clawback policies in the event of a financial restatement.
This Comp & Benefits Brief serves as a reminder of the Rule 10D-1’s requirements and offers practical guidance for enforcement and integration into broader compensation governance. Capitalized terms are defined in the “Key Defined Terms” section at the end of this Brief.
Summary of Rule 10D-1
Rule 10D-1 requires Issuers to adopt and comply with a written clawback policy that provides for the reasonably prompt recovery of erroneously awarded Incentive-Based Compensation in the event of an accounting restatement. Rule 10D-1 applies when an Issuer is required to restate previously issued financial statements due to material non-compliance with financial reporting requirements under securities laws, including corrections of errors that are material to prior statements or that would result in a material misstatement if left uncorrected in the current period. Under Rule 10D-1, the relevant date is the earlier of (i) when the board (or an authorized officer or committee) concludes or reasonably should have concluded that a restatement is required, or (ii) when a court or regulator directs the Issuer to restate.
The clawback policy must apply to all Incentive-Based Compensation deemed Received by any individual who served as an Executive Officer during the applicable performance period, provided such compensation was:
Received after the individual began serving as an Executive Officer;
Received during the three completed fiscal years immediately preceding the date the Issuer is required to prepare a restatement (including certain transition periods); and
Received while the Issuer had a class of securities listed on a national securities exchange.
The recovery amount is the excess of what was Received over what would have been Received based on the restated results. For awards based on stock price or total shareholder return, the Issuer must use a reasonable estimate of the impact of the restatement and maintain supporting documentation.
Issuers are required to recover such compensation unless the compensation committee (or majority of independent directors) determines recovery would be impracticable because:
The cost of recovery exceeds the amount to be recovered and reasonable recovery attempts have been documented;
Recovery would violate home country law in effect before November 28, 2022, with a supporting legal opinion;
Recovery would cause a tax-qualified retirement plan to fail to meet applicable tax requirements.
Issuers may not indemnify current or former Executive Officers for any recovered amounts. Additionally, disclosure of the clawback policy and its application is required in annual reports and applicable SEC filings.
Practical Considerations for Enforcement
As restatements occur, boards and compensation committees should be prepared to move from policy adoption to policy enforcement. In doing so, several legal and operational considerations may arise:
1. Contractual Alignment. Existing employment agreements, bonus plans, and equity award documents should be reviewed to ensure consistency with the clawback policy. Where needed, amendments or acknowledgments may be appropriate to support enforceability.
2. Process and Documentation. Boards should establish clear internal procedures for identifying affected compensation, calculating recovery amounts, and documenting the analysis. Finance, legal, and compensation teams should be aligned on roles and responsibilities.
3. Tax Considerations. Clawback enforcement for Executive Officers may raise tax withholding and reporting issues. Issuers should consider whether recovered amounts require adjustments to Forms W-2 or 1099, and how income tax corrections will be processed.
4. Beyond the Rule: Broader Conduct-Based Clawbacks. While Rule 10D-1 addresses financial restatements, many companies maintain broader clawback provisions applicable in cases of misconduct, violation of restrictive covenants, reputational harm, or breach of fiduciary duty. Ensuring coordination between these policies and clarity on when each applies remains a best practice.
Recommendations for Compensation Committees
As Rule 10D-1 enters its enforcement phase, proactive governance is essential. Boards that have not only adopted compliant policies but also integrated enforcement procedures into their compensation oversight framework will be best positioned to navigate upcoming restatements and regulatory scrutiny. Early engagement with legal counsel can help ensure policies are not only compliant but positioned for effective enforcement when needed. Accordingly, compensation committees and general counsel may wish to take the following steps as part of their 2025 governance cycle:
Confirm that the Issuer’s Rule 10D-1 policy is filed, current, and reviewed at least annually.
Reassess form award agreements and employment agreements for consistency with clawback enforcement.
Prepare a standing agenda item to address potential triggering events and board-level recovery discussions.
Educate new board members on the clawback framework and its interaction with the Issuer’s broader compensation strategy.
Key Defined Terms
“Executive Officer” primarily includes the Issuer’s president, principal financial officer, principal accounting officer, any vice president in charge of a principal business unit or function, or any person performing similar policy-making functions.
“Financial Reporting Measure” means any measure determined in accordance with the accounting principles used in preparing the Issuer’s financial statements, as well as any measure derived wholly or in part from such measures. This includes stock price and total shareholder return, even if not presented in the financial statements.
“Incentive-Based Compensation” means any compensation that is granted, earned, or vests wholly or in part upon the attainment of a Financial Reporting Measure.
“Issuer” means the registrant with a class of securities listed on a national securities exchange or a national securities association. For purposes of Rule 10D-1, the “Issuer” is the entity responsible for adopting and enforcing the clawback policy and complying with related disclosure obligations.
“Received”: Incentive-Based Compensation is deemed “Received” in the fiscal period during which the relevant Financial Reporting Measure is attained, regardless of when payment or grant actually occurs.
[1] To recap Rule 10D-1’s rollout:
October 26, 2022 – SEC adopts final Rule 10D-1
June 9, 2023 – NYSE and Nasdaq propose listing standards
October 27, 2023 – SEC approves listing standards
December 1, 2023 – Deadline for listed companies to adopt compliant clawback policies
2024 – First year of disclosure obligations on Form 10-K
Washington’s Digital Ad Tax Enacted: Is Litigation Now Inevitable?
On May 20, 2025, Washington Governor Bob Ferguson signed into law Senate Bill (SB) 5814, a sweeping tax bill that expands Washington’s retail sales and use tax to digital advertising services and a range of high-tech and IT services. The new law takes effect for sales occurring on and after October 1, 2025.
As we noted previously, this legislation marks a significant shift in Washington’s tax policy, extending sales tax to categories of traditionally exempt business-to-business services. With enactment, legal challenges – particularly under the federal Internet Tax Freedom Act (ITFA) – are ripe and appear inevitable.
WHAT THE LAW DOES
SB 5814 amends RCW 82.04.050 by redefining “sale at retail” to include “advertising services,” broadly covering both digital and nondigital forms of ad creation, planning, and execution. The law specifically includes:
Online referrals
Search engine marketing
Lead generation optimization
Web campaign planning
Digital ad placement
Website traffic analysis
However, the law expressly excludes services rendered in connection with:
Newspapers (RCW 82.04.214)
Printing or publishing (RCW 82.04.280)
Radio and television broadcasting
Out-of-home advertising (g., billboards, transit signage, event displays)
With these carve-outs, it is difficult to see how anything other than internet advertising remains subject to tax. The structure of the new tax facially discriminates against e-commerce and is barred by ITFA.
ITFA AND THE CERTAINTY OF A LEGAL CHALLENGE
ITFA prohibits states from imposing taxes that discriminate against digital services when comparable offline equivalents are exempt. While SB 5814 purports to cover both digital and nondigital advertising, the exclusions for nondigital forms of advertising cause it to target the digital side of the industry. For example, a digital banner ad will be taxed, whereas a banner towed by an airplane promoting the same product will not.
This distinction mirrors the structure of Maryland’s Digital Advertising Gross Revenues Tax, which has been tied up in litigation since its enactment in 2021. A Maryland trial court found that law facially violated ITFA and federal preemption principles. That litigation continues, and Washington now finds itself on a similar path.
HIGH-TECH AND IT SERVICES ARE NOW TAXABLE
In addition to digital advertising, SB 5814 extends the retail sales tax to high-tech services, including:
Custom website development
IT technical support and network operations
Data processing and data entry
In-person or live-virtual technical training
Like advertising, these intermediate services typically are purchased by businesses in support of operations rather than for end consumption. Taxing their sale introduces tax pyramiding and adds costs that will ultimately be passed on to consumers. For Washington’s tech-driven economy, this change will inflate prices and reduce competitiveness.
Local advertisers and businesses that rely on digital marketing and high-tech services will see these costs rise and lead to higher prices for consumers.
OUTLOOK
While SB 5814 is now law, its enforceability remains far from certain. Taxing digital advertising services while expressly excluding offline media places the new law on a collision course with ITFA. A legal challenge is all but guaranteed.
At the same time, the law’s fiscal impact is speculative. Revenue projections assume compliance across a complex landscape of service transactions, but practical realities, including sourcing ambiguities, administrative burdens, and behavioral changes, may undermine the base.
Washington, like Maryland, will find that taxing digital advertising is easier to legislate than to defend. The real test will come not in Olympia, but in the courts.
What Every Multinational Company Should Know About … Customs Enforcement and False Claims Act Risks (Part III)
Our previous article on What Every Multinational Company Should Know About … Customs Enforcement and False Claims Act Risks (Part I) outlined how import-related risks have substantially increased given the combination of the new high-tariff environment, the heightened ability of Customs (and the general public) to data mine import-related data, and the Department of Justice’s (DOJ) stated focus on using the False Claims Act (FCA). In Part II, we laid out how to prepare for the most common False Claims Act (FCA) risks arising from submitting false Form 7501 entry summary information. We now complete the series on “Customs Enforcement and False Claims Act Risks” with Part III, which focuses on preparing for the most common FCA risks arising from improper management of import operations.
Risks Arising from Knowing Failures to Correct Errors
If importers discover a systematic error, the position of Customs is clear: The importer is under an obligation not only to correct the error for future entries but also to use measures like post-summary corrections to update prior entries. This is demonstrated by a DOJ settlement in which an importer paid over $22 million to settle allegations that it “made no effort to right its wrongs even after acknowledging internally that it had underpaid millions of dollars of duties owed.” This type of knowing error is exactly the type of conduct that can expose importers to reverse FCA liability.
Customs Compliance Response
Apply Current Knowledge to Unliquidated Entries. Because liquidation takes (approximately) 314 days after entry, Customs grants a 300-day post-summary corrections period to correct most entry-related information. If you discover an error, Customs requires not only that the error be corrected going forward but also that any non-liquidated entries be corrected as well.
Consider Making a Voluntary Prior Disclosure. If an importer initiates a voluntary disclosure before Customs begins its own investigation, then Customs may not pursue penalties, assuming the voluntary disclosure is full and accurate, and the importer pays back any tariffs and interest due. This is an especially important advantage for the new Trump tariffs, since many of them direct that Customs should impose maximum penalties for failure to pay all of the new tariffs, without taking into account traditional Customs mitigating factors. Filing a voluntary self-disclosure before Customs initiates an administrative investigation avoids any Customs administrative penalties (provided the importer follows through with a thorough and accurate disclosure). While a self-disclosure is not a free pass to avoid FCA liability, it can reduce the multiplier and penalties assessed in settlement negotiations.
Risks from Failing to Follow Form 28 and 29 Corrections for Prior Entries
Customs commonly issues Form 28 Requests for Information and Form 29 Notices of Action that target a handful of entries (or even a single entry) where it has questions about the accuracy of submitted entry information. If this results in Customs issuing a correction, then the importer is required to correct not only the entry but also any other entries covered by the reasoning. Failure to do so was one of the key elements of the $22.8 million settlement noted above, where DOJ emphasized that although the importer had received Form 29 Notices of Action, it took two years to correct its ongoing entries (and never corrected prior entries).
Customs Compliance Response
Set Up ACE Notifications. Importers should set themselves up with ACE access so that they directly are receiving copies of Form 28 Requests for Information, Form 29 Notices of Action, and other communications from Customs rather than relying on customs brokers to provide such information. This will ensure that the importer is aware of all potential corrections to its Form 7501 Entry Summary information and can timely respond to any Customs inquiries.
Follow Through on Implementing Conforming Changes. When Customs issues a correction to a single entry or set of entries, the importer is required to identify all analogous entries and correct them for any unliquidated entries, because they are not final. Customs also has the authority to open an inquiry into liquidated entries under Section 1592 if the importer does not file a voluntary disclosure.
Risks Arising from Failure to Notice Red Flags from Suppliers
Under Customs regulations, the importer of record has the sole responsibility to pay all tariffs due. There is, however, no such restriction under the FCA, which means that multinationals that receive imported goods from suppliers can still be liable for FCA claims. For example, an importer of garments from China paid $1 million to settle allegations that it “repeatedly ignored warning signs that its business partner, which imported garments from China, was engaged in a scheme to underpay customs duties owed on the imported garments it sold to” the importer. Thus, even though the customer was not the importer of record, it settled on the basis it had accepted “responsibility for its failure to take action in response to multiple warning signs that [the importers of record] were undervaluing their imported goods and therefore paying less in import duties than they should have been paying.”
Moreover, in 2016, both the importer and manufacturer of clothing goods agreed to pay $13.375 million to settle claims that they conspired to underpay customs duties using invoices that misrepresented the value of the goods at issue. That same year, a U.S. defense contractor agreed to pay $6 million to settle allegations that it used Chinese-imported ultrafine magnesium in flares manufactured and sold to the U.S. Army, in violation of its contract with the military. Though it was the importer who allegedly misrepresented the country of origin, DOJ alleged that the contractor conspired with the importer to sell the nonconforming goods to the government.
Customs Compliance Response
Monitor Business Partners for Red Flags. In a high-tariff environment, there are more incentives than ever for importers to take steps to try to minimize their tariff liabilities. Educate personnel in Procurement, Accounting, and other relevant areas of the company to be alert to potential underpayments by suppliers, which also is useful for situations where business partners might provide incorrect information where your company acts as the importer of record. Simply put, know your business partners well.
Risks Arising From Avoiding Customs Penalties
In general, any situation in which an importer takes steps to avoid Customs penalties can lead to a potential FCA penalty. Examples include failing to mark the country of origin (10% Customs penalty), providing false or misleading information on entry documents (as we covered in Part II), failing to maintain required records, or noncompliance with forced labor regulations. By way of example, the Third Circuit found that failure to notify Customs of marking violations can support an FCA allegation. 839 F.3d 242 (3rd Cir. 2016), cert. denied, 138 S.Ct. 107 (2017). Illustrating this risk, an importer paid $765,000 to settle allegations that it had failed to mark imported pharmaceutical products with the appropriate COO and thus violated the FCA by “knowingly avoiding the marking duties owed to the United States for those imports.”
Another example includes a $1.9 million DOJ settlement in which an importer agreed to settle allegations that it falsely labeled tools it imported as “made in Germany” when the tools were, in fact, made in China. According to DOJ, if the products had been described as Chinese products, the importer would have been required to pay a 25% tariff on the goods. Thus, by allegedly falsely describing the tools as “German,” the importer avoided paying these tariffs.
Customs Compliance Response
Confirm Consistent Marking. Ensure the COO for marking decisions is made in accordance with the correct legal regime, by following the rules of free trade agreements like the USMCA (even in situations where special tariffs may require the use of substantial transformation principles for determining the amount of other tariffs due). Ensure marking is made either directly on the product or, where allowed, on a relevant container or other acceptable fashion to ensure it remains intact for the ultimate purchaser.
Maintain Required Records. Customs regulations require that, subject to certain exceptions, records must be kept for five years from the date of the activity which required creation of the record. Importers should ensure that they are complying with Customs recordkeeping requirements and that their employees are familiar with recordkeeping requirements. The FCA also requires that documents supporting claims — and the claims documentation itself — be true and accurate.
Conduct a Supply Chain Integrity Check and Continuous Monitoring. Complying with labor and transparency requirements is integral to tariff management. Importers should know every step in their supply chains and conduct integrity checks or audits of their suppliers. This can help ensure your company stays informed of new developments to comply with laws — especially in the areas of forced labor, human trafficking, environmental regulations, and modern slavery — and thus avoid potential FCA liability pertaining to these types of regulations. Importers also should implement systems to regularly monitor their suppliers’ performance and compliance, and continuously evaluate their supply chain for new potential risks that might arise. For further guidance on how to best monitor your supply chain, check out our white paper on Managing Supply Chain Integrity Risks.
Between the new Trump tariffs, increased Customs attention to tariff underpayments, newly announced DOJ emphasis on tariff payments, and the greater visibility of Customs into importing data, the potential for Customs FCA actions is greater than ever. As demonstrated throughout this three-part series, DOJ has a rich history of using a wide variety of issues to support FCA actions. DOJ’s announced attention to concentrate on Customs compliance and the full payment of tariffs means that future customs-related FCA cases will build on a foundation of existing cases. These previous cases have already given DOJ and whistleblowers the chance to test out a multitude of the factual and legal theories discussed throughout this series, with both DOJ and relators likely to be incentivized by the potential for significantly higher recoveries and the apparent increased enforcement flexibility resulting from the new tariff regime.
Thus, under the Trump administration’s trade agenda, multinationals should expect heightened scrutiny of imports and DOJ’s increased use of the FCA to bring customs-related actions. It is therefore more critical than ever for importers to assess and revamp their Customs compliance programs to address these new risks. Proactively addressing compliance issues, strengthening internal controls, and documenting decision-making processes can reduce exposure and better position multinationals to respond effectively if Customs scrutiny arises. In an environment with increased potential for enforcement and where corresponding penalties are steep, early preparation is both a risk management strategy and a competitive advantage.
Tricky Compliance Issues for Companies When an Executive Terminates Employment: Executive Severance Plans
Executive employment relationships are rarely permanent. When an executive or other senior-level employee terminates employment, companies often must deal with difficult tax, equity, and benefits issues that arise in the course of the employee’s termination.
This article is the first in a series of articles that will be drafted by Foley & Lardner attorneys over the course of the next five months addressing important compliance pointers for structuring post-termination benefits or addressing issues and considerations for companies when an executive terminates employment. Employers can better position themselves for any termination down the road by thinking through some of these considerations at the start of the executive’s employment arrangement.
To kick off the series, this article focuses on executive severance plans and, in particular, a topic that you may have already considered when drafting an executive severance plan: Will ERISA apply to my executive severance plan? If so, what do I need to know?
This article discusses what constitutes an ERISA-governed executive severance plan, what an ERISA-governed severance plan requires from the plan administrator, and why you may want your plan to be governed by ERISA. We also provide a preview of what is to come in later articles in this series.
Does ERISA Apply to my Executive Severance Plan?
Although they are unusual, funded executive severance plans are always subject to ERISA.
Deciding whether ERISA applies to a more typical unfunded executive severance plan is not as straightforward. The U.S. Supreme Court set the standard for determining whether a severance arrangement is an ERISA plan in 1987. In Fort Halifax Packing Co. v. Coyne, the Court held that an unfunded executive severance plan is likely subject to ERISA if the plan requires an ongoing administrative scheme, specifically noting that a plan providing for a one-time payment triggered by a specific event (like a plant closure) would not be subject to ERISA.
Relying on the Fort Halifax Packing Co. v. Coyne decision, courts have found that an administrative scheme may be established through (i) the exercise of employer discretion, e.g., to decide whether termination is with or without cause, (ii) an ongoing process for complying with a state statute, (iii) an ongoing duty to monitor compliance with non-compete, non-solicitation, and medical coverage provisions, and/or a (iv) group or pattern of similar executive severance agreements.
Most severance plans will afford the employer sufficient discretion to be considered an ERISA-governed plan, even if that was not the employer’s intent. There is nothing wrong with a severance plan being subject to ERISA, but it is important for plan sponsors to be aware of this in order to take advantage of certain benefits that come along with complying with ERISA.
ERISA Applies—What Should I Do?
An ERISA-governed severance plan must be in writing, be administered consistent with the written terms, and comply with the applicable ERISA reporting and disclosure requirements, including annually filing a Form 5500 (if required) and distributing a summary plan description to plan participants. Whether a Form 5500 filing is required depends on several factors, including whether the severance plan is a “pension plan” or “welfare plan” under ERISA. A pension plan under ERISA is any plan, fund, or program established or maintained by an employer that either provides retirement income to employees or results in the deferral of income extending beyond termination. An ERISA welfare plan is any plan, fund, or program established or maintained by an employer that provides a wide range of health or welfare benefits or any benefits as described in Section 302(c) of the Labor Management Relationship Act of 1947, which includes severance. Most severance plans subject to ERISA will qualify as welfare plans. The most likely scenario where a severance plan may qualify as a retirement plan is if severance benefits are only available to employees upon reaching a certain age, such as age 65. Structuring a severance benefit in this way, however, is rare.
If a broad-based severance plan qualifies as a welfare plan (which is most likely), a Form 5500 filing is only required if the plan has 100 or more participants. If a broad-based severance plan qualifies as a pension plan, then a Form 5500 filing is required regardless of how many participants are in the plan.
ERISA also includes claims and appeals procedures that must be followed by the employer and participants in the event of a dispute. This may provide some protection to an employer in the event the employer is sued by a former employee for failing to pay severance benefits. If the employer has followed the claims and appeals procedures, the court will only overturn the employer’s decision if it determines the employer acted in an arbitrary and capricious manner.
Because an executive severance plan is likely limited to a select group of management or highly compensated employees, it may be considered a “top hat” plan. All top hat plans are exempt from certain requirements of ERISA, such as the reporting and disclosure requirements discussed above. This means that a severance plan that qualifies as a top hat welfare plan will not be required to file a Form 5500, regardless of the number of participants in the plan, or distribute a summary plan description. On the rare occasion that a severance plan qualifies as a top hat pension plan, the plan will be exempt from certain other ERISA requirements, provided the plan administrator files a top hat plan statement with the Department of Labor within 120 days of the plan’s effective date. As mentioned before, though, an executive severance plan is not likely to qualify as a pension plan and will only seldomly need to make such a filing with the Department of Labor.
What are the Benefits of an ERISA-Governed Severance Plan?
Being subject to ERISA may confer certain benefits to employers:
Employees can only sue for benefits and legal fees — no punitive or compensatory damage
Uniform administration of benefits
Courts give deference to employer administrative decisions
Unhappy individuals must exhaust internal claims and appeals procedures of plan before filing suit
Generally litigated in federal, not state court (which some attorneys prefer)
Anything Else I Should Consider When Drafting an Executive Severance Plan?
Yes, you should consider Internal Revenue Code Section 409A structuring and administration considerations.
U.S.-China Lower Reciprocal Tariffs During 90-Day Negotiation Period
On May 12, 2025, the Administration agreed to lower reciprocal tariffs imposed on products of China under the International Emergency Economic Powers Act (IEEPA) for 90 days to allow for further negotiations between the two countries on a formal trade deal.
The 90-day suspension reduces the 125% reciprocal tariffs imposed on April 10, 2025, on goods imported from China down to 10%. With this reduction, the baseline reciprocal tariff on goods imported from China will now be at the same reciprocal tariff rate applicable to essentially all other countries.
This 90-day pause became effective on May 14, 2025, and is anticipated to last until August 12, 2025. Following the end of the 90-day period, assuming the U.S. and China do not reach an agreement, the reciprocal tariffs are expected to increase from 10% to 34%.
It is important to note that this pause does not affect the other tariffs that are currently imposed against Chinese imports, including the 20% IEEPA-Fentanyl tariffs imposed on products of China in February and March 2025, as well as any applicable Section 301 tariffs imposed during the first Trump Administration, antidumping/countervailing duties, and general duty rates. For example, an item from China subject to 25% Section 301 tariffs would now be subject to a 55% rate taking into account the additional IEEPA-Fentanyl (20%) and reciprocal (10%) tariffs, plus any general duty rate. However, for Chinese imports subject to Sec. 232 duties for steel and aluminum products and their derivatives and automobiles and their parts, importers should carefully review Executive Order 14289’s “unstacking” provisions.
Additional Tariffs On the Runway? Commerce Seeks Public Comments on Potential Commercial Aircraft, Engines, and Parts Tariffs
While many in the aviation industry are busy trying to navigate the existing U.S. tariff regime, they should also consider the potential impact of a new investigation that could lead to additional tariffs (e.g., 25 percent, based on recent similar investigations). On May 1, 2025, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) initiated a Section 232 investigation to determine the effects on the national security of imports of commercial aircraft and jet engines, and parts thereof (collectively, “aircraft and aircraft parts”). The current unpublished Federal Register notice of investigation can be found here.
This investigation is just the latest Section 232 investigation on imported merchandise, following closely on the heels of recently initiated investigations on lumber, semiconductors, pharmaceuticals, critical minerals and copper, just to name a few. Moreover, the U.S. has already imposed tariffs pursuant to Section 232 on autos and auto parts and on steel and aluminum articles.
During this investigation, BIS will allow for interested parties to submit written comments to inform the agency’s decision on whether to take action, including by imposing tariffs or quotas on imports. BIS is most interested in receiving comments on the:
current and projected demand in the U.S. for aircraft and aircraft parts;
extent to which domestic production of aircraft and aircraft parts can meet domestic demand;
role of foreign supply chains in meeting U.S. demand for aircraft and aircraft parts;
concentration of U.S. imports of aircraft and aircraft parts from a small number of suppliers and related risks;
impact of foreign government subsidies and predatory trade practices on the competitiveness of the aircraft and aircraft parts industry in the U.S.;
economic impact of artificially suppressed prices of aircraft and aircraft parts due to foreign unfair trade practices and state-sponsored overproduction;
potential for export restrictions by foreign nations, including the ability of foreign nations to weaponize their control over supplies of aircraft and aircraft parts;
feasibility of increasing domestic capacity for aircraft and aircraft parts to reduce reliance on imports;
impact of current trade policies on domestic production of aircraft and aircraft parts and whether tariffs or quotas are necessary to protect national security.
If the Section 232 tariffs on autos and steel/aluminum are any indication of the likely outcome, BIS’s investigation may result in imposition of a 25 percent duty on aircraft and aircraft parts. It remains to be seen whether any Section 232 tariffs on aircraft and aircraft parts, if imposed, may allow for import adjustment offsets if assembly occurs in the U.S. (similar to the Section 232 auto import adjustment) or if exemptions will be granted for certain countries (e.g., in the U.S.-U.K. trade deal).
BIS will allow for interested parties to submit written comments on this investigation during the comment period of within 21 days of official publication in the Federal Register, which we anticipate will be on May 13, 2025, making the comment period deadline June 3, 2025. Parties that may be impacted by tariffs or quotas on imports of aircraft and aircraft parts should strongly consider whether to submit comments or to begin strategic planning to deal with the added costs for aircraft and aircraft parts.