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IRS Waives Penalties for Dyed Diesel on Highways Through December 31
Under an October 5 executive order, farm and off-road diesel can be used in highway vehicles without excise tax penalties, retroactive to October 1.
The IRS will not impose penalties when dyed diesel fuel is sold for highway use or used in vehicles on highways anywhere in the country, from October 1 through December 31, 2026, the agency said. The relief follows the President's October 5 executive order, Emergency Tax Relief on Diesel Fuel.
Dyed diesel is normally untaxed because it is meant for exempt uses such as farming; putting it in a highway vehicle ordinarily triggers the federal excise tax and penalties, owed by the retail seller or, for fuel not bought at retail, such as farm storage-tank fuel, by the vehicle's operator.
During the relief period the IRS says it will suspend its usual collection and enforcement: fuel compliance officers are being reassigned, there will be no federal inspections of on-road dyed fuel, users need not keep records to prove eligibility, and sellers and distributors do not have to investigate or document how dyed fuel is used. Penalties for missing semimonthly tax deposits or records are included.
The relief is federal only. State fuel taxes and state rules on dyed diesel are separate, so check with your state's revenue or motor fuel agency before relying on it.
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