IRS Grants Dyed Diesel Fuel Penalty Relief Due to Disruptions of the Fuel Supply Chain

May 13, 2021

In response to disruptions of the fuel supply chain, the IRS recently announced it will not impose a penalty when dyed diesel fuel is sold for use or used on the highway in Alabama, Delaware, Georgia, Florida, Louisiana, Maryland, Mississippi, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia and the District of Columbia. The relief is retroactive to May 7, 2021 and will remain in effect through May 21, 2021.

This penalty relief is available to any person that sells or uses dyed diesel fuel for highway use. In the case of the operator of the vehicle in which the dyed diesel fuel is used, the relief is available only if the operator or the person selling such fuel pays the tax of 24.4 cents per gallon that is normally applied to diesel fuel for highway use.

The IRS will not impose penalties for failure to make semimonthly deposits of this tax. IRS Publication 510, Excise Taxes, has information on the proper method for reporting and paying the tax.

Ordinarily, dyed diesel fuel is not taxed, because it is sold for uses exempt from excise tax, such as to farmers for farming purposes, for home heating use and to local governments.

The IRS stated that it is closely monitoring the situation and will provide additional relief as needed.