IRS Suspends Dyed Diesel Highway Penalties Through Dec. 31, Relief Retroactive to Oct. 1
Federal fuel compliance inspections are suspended and no recordkeeping is required to prove eligibility, but state fuel taxes and penalties remain in force.
Source: Internal Revenue Service ↗
The IRS announced that it will not impose penalties when dyed diesel fuel is sold for highway use or used on highways anywhere in the United States, with the relief retroactive to Oct. 1 and running through Dec. 31, 2026.
The announcement covers any person who sells dyed diesel fuel for highway use or who uses dyed diesel fuel to power a vehicle on the highway. Ordinarily, dyed diesel is exempt from excise tax because it is destined for non-taxable purposes such as farming; the tax applies when dyed fuel enters highway use, with liability falling on the retail seller or, where no retail sale occurred, on the vehicle operator.
For the duration of the relief period, the IRS said, ordinary collection and enforcement procedures are suspended. The IRS said all Fuel Compliance Officers would be reassigned to other responsibilities and no federal inspections of on-road dyed fuel usage would take place. Taxpayers do not need to maintain records to substantiate eligibility, and sellers and distributors are under no obligation to investigate or document the ultimate end-use of dyed fuel they sell. The relief covers penalties for failure to make semimonthly tax deposits and for failure to maintain adequate records.
Taxpayers who receive a penalty notice despite qualifying for relief were directed to follow the instructions on the notice or contact the IRS directly.
The IRS said it expected to issue further guidance on postponing payment of excise taxes under 26 U.S.C. 4041(a)(1)(A) and 26 U.S.C. 4041(b)(1)(B), and said it would explore ways to eliminate the obligation to pay any amounts deferred. The IRS said forthcoming guidance would address how the relief applies to Form 720, the Quarterly Federal Excise Tax Return, and any other relevant forms.
The IRS said the action was taken in response to the President’s Oct. 5, 2026, executive order titled “Emergency Tax Relief on Diesel Fuel.”
The relief applies only to federal tax obligations. State fuel taxes and any state-imposed penalties on highway use of dyed diesel remain in force, and the IRS noted that many but not all states had provided comparable state-level relief. The IRS directed taxpayers to their applicable state agencies for current state guidance.
