The Internal Revenue Service announced October 14 that it will not impose penalties for dyed diesel fuel sold for highway use or used in diesel-powered vehicles on roads through December 31, 2026. The relief, retroactive to October 1, responds to President Trump's October 5 Executive Order on emergency diesel fuel tax relief.
During the relief period, the IRS will suspend ordinary tax collection and enforcement procedures. Federal inspections of on-road dyed fuel usage will cease, IRS Fuel Compliance Officers will be reassigned to other duties, and taxpayers need not maintain records to substantiate eligibility. Sellers and distributors have no obligation to document where fuel sold will ultimately be used.
Normally, dyed diesel fuel is exempt from federal excise tax because it is destined for exempt uses such as farming. However, it becomes taxable when sold for highway use or used to power vehicles on roads. The relief covers all related penalties, including those for failure to make timely tax deposits or maintain adequate records.
The IRS said it anticipates issuing further guidance on postponing payment of related tax obligations. The relief applies only to federal taxes; states may impose their own excise taxes and penalties on highway dyed diesel use, though many have provided similar relief.