The IRS recently announced relief, retroactive to May 7, 2021, on the use and sale of dyed diesel fuel used on the highway in the states of Alabama, Delaware, Georgia, Florida, Louisiana, Maryland, Mississippi, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia and the District of Columbia. The waiver of penalties for the sale of dyed diesel fuel for use on the highway is meant to minimize or prevent disruptions to the fuel supply for diesel-powered highway vehicles due to the fuel shortage from the shutdown of the Colonial Pipeline. The relief is in effect through May 21, 2021.
Generally, dyed diesel fuel is not taxed, because it is sold for exempt uses, such as for use in farming, home heating and local government run buses. Ordinarily, if a person uses dyed diesel fuel for a taxable use, such as use in a vehicle on the highway, there is a penalty for such use. This announcement to waive the penalty is applicable for any person who sells or uses dyed fuel for highway use. For vehicle operators using the dyed diesel fuel, the relief is available only if the operator or the fuel seller pays the 24.4 cents per gallon tax that is normally applied to undyed diesel fuel used on the highways. The IRS will not impose penalties for failure to make semimonthly deposits of this tax and recommends taxpayer check IRS Publication 510, Excise Taxes, for information on the proper method for reporting and paying the tax.
Taxpayers should seek advice from their tax preparers if they need help determining if this waiver applies to them or if they need assistance of reporting and paying the tax.
