Monday,
October 26, 2026 – On October 23, 2026, the IRS issued 11 Frequently
Asked Questions (FAQs) on the temporary federal excise tax relief
for dyed diesel sold for use or used on the highway from October 1
through December 31, 2026. The FAQs supplement IR-2026-122 and
IR-2026-125 and answer several questions raised by EMA members. EMA
appreciates the Administration’s continued engagement with the
industry.
Key Clarifications
1. Seller presumption. During the relief period,
sellers are presumed not to know or have reason to know that dyed diesel
is used in a highway vehicle (FAQ 7). For purposes of the temporary
relief, this presumption protects sellers from Internal Revenue Code §
4041(a) liability arising solely from a customer’s subsequent highway
use. It does not constitute forgiveness of the underlying tax.
2. No Form 720 reporting or recordkeeping. Covered
dyed diesel transactions need not be reported on Form 720, including
fourth quarter returns otherwise due February 1, 2027 (January 31 falls
on a Sunday), and records need not be kept or later reconstructed solely
to substantiate § 4041(a) liability (FAQs 1–3). Filing and recordkeeping
for other taxes, exemptions, credits, and refunds continue.
3. LUST tax. The $0.001-per-gallon LUST tax still
applies when dyed diesel leaves the terminal, but it is not imposed
again on later highway sale or use (FAQ 10).
4. Scope. The relief covers dyed biodiesel mixtures
but not clear diesel or dyed kerosene, and it creates no new obligations
for distributors, retailers, purchasers, or end users (FAQs 4, 8,
9).
5. Dyed-fuel notices. “Nontaxable use only” notices
(signs) required by Treas. Reg. § 48.4082-2 need not be retained during
the relief period but must be restored on January 1, 2027 (FAQ 11).
6. Residual dye. The IRS is considering a grace
period for dye remaining in tanks after December 31, but none has been
announced (FAQ 6). EMA members should plan as though ordinary
enforcement resumes January 1.
7. State law. The federal relief does not affect
state fuel taxes or dyed-fuel rules, including for interstate travel
(FAQ 5). EMA members should confirm requirements with each state.
Open Questions
The IRS has not eliminated the underlying tax. IR-2026-122 framed the
relief as a postponement of payment under § 7508A and said only that the
IRS would explore eliminating deferred amounts, so the disposition of
any deferred tax and interest remains unresolved. EMA continues to press
the White House, Treasury, and the IRS on this issue and the year-end
transition.
EMA members should retain ordinary commercial records and copies of
the IRS FAQs and related releases. Although FAQs not published in the
Internal Revenue Bulletin are not precedential authority, reasonable,
good-faith reliance on them may provide protection against penalties for
which reasonable cause is a defense.
For questions, contact EMA Regulatory Counsel Jeffrey L. Leiter
(jleiter@bmalaw.net) or Jorge Roman (jroman@bmalaw.net).
This alert is provided for general informational purposes only
and does not constitute legal or tax advice.
