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IRS provides dyed diesel fuel relief from excise tax

On Oct. 14, the IRS announced that, in response to the Oct. 5, 2026, executive order, Emergency Tax Relief on Diesel Fuel, it will not impose a penalty when dyed diesel fuel is sold for use or used on highways nationwide.

The relief is retroactive to Oct. 1 and will remain in effect until Dec. 31. Relief is available to any person that sells dyed diesel fuel or uses dyed diesel fuel for highway use.

Ordinarily, dyed diesel fuel is not subject to tax because it is destined for an exempt use, such as use on a farm for farming purposes; however, it would be taxed if sold for highway use or used to power a vehicle on the highway. Generally, the person liable for the tax is the person who sells dyed diesel fuel at retail or, if the dyed diesel fuel is not purchased at retail, the operator of the motor vehicle (for example, dyed diesel fuel held in a storage tank on a farm).

During the relief period, ordinary procedures for collection and enforcement will be suspended. All IRS Fuel Compliance Officers will be re-assigned other responsibilities, and no federal inspections of on-road dyed fuel usage will occur. During the relief period, taxpayers need not maintain records necessary to substantiate their eligibility for relief. The IRS will not impose any penalties related to the excise tax for dyed diesel fuel sold for use or used in diesel-powered vehicles on highways nationwide during the relief period. This relief includes penalties for failure to make semimonthly deposits of tax or to maintain adequate records. Sellers and distributors are under no obligation to investigate or document the ultimate end-use of dyed fuel sold during the relief period.

Taxpayers who believe they qualify for relief but receive a penalty notice should follow the instructions in the notice or contact the IRS for assistance.
The IRS anticipates issuing guidance on the

The IRS anticipates that it will issue further guidance on the postponement of payment of taxes and certain tax filing requirements.

This relief only applies for federal tax purposes. It has no effect on state fuel taxes and penalties that a state may impose on the use of dyed diesel fuel on the highway. Georgia is among the states that have provided similar state excise tax-related relief. Taxpayers are encouraged to refer to their applicable state agencies for the latest guidance on state-level relief.

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