EMA Regulatory Alert: IRS Relieves Dyed Diesel Highway Users and Sellers of Certain Form 720 Reporting and Recordkeeping Requirements Through End of Year
On Wednesday evening, the IRS took another significant step to implement Executive Order 14435, “Emergency Tax Relief on Diesel Fuel.” In IR-2026-125, the IRS announced that, for taxable uses of dyed diesel occurring from October 1, 2026 through December 31, 2026, it will not challenge temporary failures to meet return-filing, reporting, and recordkeeping requirements solely attributable to liability under Internal Revenue Code § 4041(a).
EMA appreciates that the White House reached out to EMA directly for its views and its members’ concerns. Members’ most frequent question was whether sellers who were told they need not track end use would later have to report a tax they had no way to calculate. The October 21 announcement responds directly to that concern, although the ultimate treatment of the underlying tax and any interest remains open.
Background
Executive Order 14435, signed on October 5, directs Treasury to provide penalty relief for highway use of dyed diesel and, to the extent authorized by law, to postpone payment of the related federal excise tax. In IR-2026-122 (October 14), the IRS made penalty relief retroactive to October 1, stated that sellers need not investigate or document end use, and identified the person generally liable as the retail seller or, absent a retail sale, the vehicle operator. The IRS also said it anticipates guidance postponing payment under § 7508A and will explore ways to eliminate the deferred obligation.
Section 4041(a) generally imposes a backup tax on diesel fuel not previously subject to the federal highway fuel tax under § 4081. The tax can arise when untaxed diesel is sold for highway use, in which case the seller is liable (§ 4041(a)(1)(A)(i)), or when untaxed fuel is used in a highway vehicle without a prior taxable sale, in which case the user is liable (§ 4041(a)(1)(A)(ii)). The rate is generally 24.4 cents per gallon, including the 0.1 cent per gallon LUST tax where applicable.
What IR-2026-125 Provides
The new relief covers three things: filing Form 720 solely to report the covered liability, reporting it on an otherwise required Form 720, and creating or maintaining records solely to substantiate it. The IRS will not assert civil penalties or additions to tax for covered failures. The relief applies even when a filing deadline falls after December 31, and no later filing, reporting, or reconstruction of records will be required. EMA members need not build tracking systems or reconstruct gallons at year-end solely for the covered liability.
Legal Analysis
Reporting relief, not tax forgiveness. The IRS acted under its authority to administer the return and recordkeeping requirements of §§ 6001 and 6011. The release does not amend § 4041 or state that the underlying tax has been eliminated. Nor does it address when any covered tax would become payable, whether interest would accrue, or how the § 7508A postponement will operate. As a news release, it announces the IRS’s administrative position, which taxpayers may reasonably take into account, but it does not itself postpone or eliminate the statutory obligation. Until further guidance is issued, EMA members should describe the action as relief from filing, reporting, and recordkeeping, not as forgiveness of the tax.
Statutory scope. The release covers § 4041(a). The October 14 release also referred to § 4041(b)(1)(B), so members should not assume liabilities under other provisions are covered. The release describes liability “arising from taxable uses,” but § 4041(a)(1)(A)(i) also imposes liability on retail sales. EMA understands the relief to encompass both qualifying retail sales and taxable uses under § 4041(a), consistent with the IRS’s October 14 announcement, and will request confirmation of that interpretation.
Other Form 720 obligations and records continue. EMA members must continue to file Form 720 and keep records for all other liabilities and for refund, credit, and exemption claims (Forms 8849 and 4136 and Form 720 Schedule C). Ordinary business records such as invoices, bills of lading, and delivery tickets should be retained as usual.
State law is unaffected. The federal relief applies only to federal tax. It does not change state motor fuel taxes, state restrictions on highway use of dyed diesel, or state and IFTA reporting and recordkeeping requirements. Because those restrictions and taxes are set by state law, any relief from them must come from the state itself. That relief typically comes through a governor’s executive order or emergency declaration, legislation, or action by the state’s revenue or enforcement agencies. Where a state has not acted, its dyed-fuel restrictions, taxes, and penalties continue to apply in full, and a highway sale of dyed diesel may violate state law even though federal penalties are waived. Where states have acted, relief varies widely: some limit it to agricultural or forestry use, and others suspend enforcement while still requiring the state tax. EMA will publish a separate summary of state actions.
Residual dye and fuel quality. The IRS has acknowledged concerns about residual red dye in fuel tanks after December 31 and is considering a grace period. Nevada has already said it will continue suspending enforcement after the federal order expires long enough for residual dye to dissipate, and EMA has encouraged a comparable federal approach. The tax relief does not affect EPA fuel standards, including ultra-low sulfur requirements for highway diesel.
Recommended Steps for EMA Marketers
Continue filing Form 720 for all other liabilities and keep ordinary business records in the normal course.
Confirm the law of each state in which you operate before making highway sales of dyed diesel. Federal relief does not authorize a sale that state law prohibits.
Describe the federal action accurately to customers. While penalties are waived and reporting and recordkeeping obligations are relieved, the underlying federal tax has not been forgiven.
Review customer contracts and invoices for tax pass-through terms and consult your accountants and tax advisors about potential liability during the relief period.
Plan for the end of the relief period, and watch for federal and state guidance on residual dye.
EMA thanks the White House for seeking EMA’s views, and Treasury and the IRS for their prompt work. EMA will keep members informed as further guidance is developed.
This alert is provided for general informational purposes and does not constitute legal or tax advice. Members should consult their own tax advisors regarding their specific circumstances.
For questions, contact EMA Regulatory Counsel Jeffrey L. Leiter or Jorge Roman.
The Trump administration announced this week that it will release up to one-third of the Northeast Home Heating Oil Reserve to lower fuel costs ahead of winter. Companies will be allowed to borrow up to 315,000 barrels of fuel oil prior to mid-November but must return the same volume of fuel by next winter. The move comes after Sen. Susan Collins (R-ME) and Sen. Angus King (I-ME) called on the administration to release oil from the reserve. Energy Secretary Chris Wright said the release is a temporary measure to mitigate the current supply disruption. He also urged Northeast Democrats to support a new natural gas pipeline to lower the cost of heating oil. It remains unclear what impact the release will have because, according to a Government Accountability Office report, the reserve holds less than two days of regional fuel consumption.
Also, this week, EMA along with seven other organizations, sent a letter to Rep. Everton Blair (D-GA) urging him to protect the current ban on privatizing and commercializing Interstate rest areas. The letter expressed concern about proposals that would remove the federal prohibition on commercial activities at Interstate rest stops and on the Interstate right-of-way. Specifically, the letter opposed Rep. Blair's SUN Act (H.R.10769), which would permit electric vehicle (EV) charging in these areas. The organizations noted that the legislation would likely create government-backed competition with travel centers, gas stations, convenience stores, and hotels located near the Interstate that are already investing in EV charging. The letter also highlighted that the legislation would increase pressure to create additional exemptions for food and beverage sales for EV users, ultimately eliminating jobs. The letter is similar to one that was sent to Sen. Jeff Merkley (D-OR) last year.
A coalition of more than 130 groups representing energy, labor, manufacturing, transportation, and business across the country sent a letter to House and Senate leadership urging Congress to pass the Bipartisan American Affordability and Jobs Act of 2026 (S.5653) by the end of 2026. The letter highlighted that permitting delays raise costs, restrict investments, and slow the construction of necessary infrastructure. However, EMA did not sign the letter due to concerns that the legislation would negatively affect small business heating oil dealers, particularly in the Northeast.
On the issue of rising diesel prices, President Trump announced $8 billion in aid to farmers by launching the Harvest Fuel Relief Program. President Trump also indicated that he would approve the year-round sale of E15 but stated he would make the policy permanent only if Sen. Roger Marshall (R-KS) is reelected. It remains unclear whether he would block Environmental Protection Agency (EPA) waivers that allow the sale of E15 during the summer. President Trump has previously signaled support for the policy by signing an executive order requiring the EPA to grant annual summer waivers.
Additionally, a group of 18 free-market and taxpayer advocacy groups sent President Trump a letter on October 22 requesting that the Jones Act waiver be extended past November 15 to allow foreign-flagged ships to transport oil and gas. The group also urged the administration to drop a prior-approval requirement, which has reduced the number of foreign-flagged fuel shipments. Also, this week, Rep. Salud Carbajal (D-CA) sent a letter to the Department of Homeland Security raising concerns about the Trump administration's enforcement of federal laws on vessels operating under the Jones Act waiver. The letter noted that the current waiver does not permit an exemption from any other federal requirements applicable to foreign vessels, employers, crewmembers, or vessel owners, including immigration law and environmental protection. It also pointed out that $40 million worth of petroleum products were moved by foreign-flagged ships without the U.S. Maritime Administration’s knowledge.
Coalition Urges Treasury to Adopt 45Z Credit Transparency
EMA, NATSO, and SIGMA have led a coalition letter urging the Treasury Department and IRS to include credit value transparency requirements in the final Section 45Z Clean Fuel Production Credit rule. he letter was formally submitted on Thursday, October 22.
The coalition argues that the 45Z credit’s structure keeps much of its value from reaching consumers. Because the credit is complex to calculate, the regulatory framework creates information asymmetries that prevent the credit from putting downward pressure on fuel prices. To close that gap, the letter asks Treasury to require any producer claiming the 45Z credit to disclose on its bills of lading or product transfer documents:
Whether the facility received a 45Z credit in the prior tax year
The average credit value per gallon the facility produced in that year
Whether the facility’s credit value reflected USDA-recognized regenerative agriculture practices, and whether the facility used carbon capture and storage
The disclosures would give wholesalers, terminal operators, and retail blenders the information they need to negotiate prices reflecting a fair share of the credit value, without requiring proprietary or transaction-specific data. The coalition notes that producers already calculate this information for their tax filings, and that Treasury can adopt the requirement under its existing authority without congressional action. With diesel prices at record highs, the letter frames transparency as a ready tool for lowering prices at the pump.
EMA will keep members updated as Treasury finalizes the rule.
EMA Member Advisory: Critical PHP Security Vulnerabilities (“PHP2Shell”)
Critical security vulnerabilities in PHP, the widely used software technology that powers millions of websites (including those built with WordPress and other popular content management systems), have been publicly disclosed this week. Collectively referred to as “PHP2Shell,” these issues affect a large share of the web—by some estimates, roughly 70–75% of websites whose server-side language is known.
The vulnerabilities (CVE-2026-109618 and CVE-2026-109619) have existed in PHP versions dating back many years (from 5.4 onward). Think of the vulnerability as a lock that has long been present, and an exploit as the key. Until recently, no one had publicly demonstrated a practical key. Over the summer, frontier AI models assisted researchers (including teams connected to OpenAI’s “Patch the Planet” effort and Wiz) in identifying and developing practical exploits for these longstanding flaws.
On Tuesday, details of the issues and related exploit information leaked online. A successful exploit allows an attacker to send a specially crafted request to an unpatched website, execute unauthorized code on the server without needing to log in, and potentially take complete control of the server. Emergency patches were released by the PHP project on October 21, 2026, for supported branches.
What EMA members and their organizations should do now
Contact your website administrator or hosting provider. Ask them to confirm that the PHP version running your website has been updated to a patched release (PHP 8.5.12, 8.4.27, 8.3.36, or 8.2.35, or an equivalent distribution security update) and that all PHP workers/processes have been restarted.
Check your website software. Ensure your content management system, plugins, themes, and other server software are current.
Verify your backups. Confirm that recent website and database backups are available and can be restored if needed.
Review website activity. If you manage your own site, monitor for unusual activity, unexpected files, unfamiliar administrator accounts, or other signs of unauthorized access.
Follow up if your host manages updates. Request explicit confirmation that the appropriate security patches have been applied.
Updating PHP addresses these specific vulnerabilities, but it does not guarantee a site is free from other risks or that it was not compromised before the update. Older end-of-life PHP branches (8.1 and earlier) have limited or no official binary fixes; migration or vendor-supported backports should be prioritized where possible.
What happens next
Leading-edge AI models are now more advanced than many traditional code review teams or human cybersecurity experts in certain discovery tasks. It is not yet clear whether this episode is a one-off or the start of more frequent discoveries of previously hard-to-exploit flaws. Members are encouraged to keep website software current, maintain reliable backups, and monitor relevant security advisories so they can react quickly.
EMA encourages members to share this advisory with relevant technical contacts, clients, or stakeholders as appropriate. For the most current official details, refer to the PHP project’s security advisories and your hosting provider’s status updates.
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Federated Insurance Employment Practices Network HR Question of the Month
Federated Insurance’s HR Question of the Month focuses on employment-related practices liability issues. This month’s question is: Refusing to Pay Overtime. One of our employees constantly clocks in early and starts working before his shift is supposed to begin. He also clocks out after his shift is supposed to end. Since he does this all the time, he usually ends up working over 40 hours a week, and we have to pay him overtime. However, we have a very clear policy stating that employees must receive prior approval before working overtime. Can we refuse to pay him for the unauthorized overtime he works, since he violated our policy and did not receive prior approval? If not, what can we do?
In its Fair Labor Standards Act (FLSA) Hours Worked Advisor, the U.S. Department of Labor (DOL) provides, “It is the duty of management to exercise control and see that work is not performed if the employer does not want it to be performed. An employer cannot sit back and accept the benefits of an employee’s work without considering the time spent to be hours worked.”
Thus, employers must timely pay all wages for hours that they know or should know employees worked. If an employee clocks in before his scheduled start time and starts working, this time is payable, even if it results in his working when he is not supposed to and incurring unauthorized overtime in violation of company policy. The same rule applies if an employee continues working and clocks out after his scheduled end time. As the DOL notes in its guidance, “Merely making a rule against such work is not enough. The employer has the power to enforce the rule and must make every effort to do so.”
That said, as the DOL suggests, an employer is not without recourse. Employees who clock in before the start of their shifts, clock out after their shifts end, and/or incur unauthorized overtime can be disciplined for any such policy violations. However, the disciplinary action for these types of infractions must stop short of failing or refusing to pay wages (including overtime) that are otherwise due.
In sum, while employees can be disciplined for violating company policies relative to adhering to a specific schedule, any proposal to dock pay as a form of disciplinary action can lead to unpaid wage claims. Employers should check their state and local laws for any additional rules that may apply.
For additional information or to discuss this in further detail, please contact your Federated regional representative or EMA’s National Account Executive Jack West at 507.455.5175 for any additional information or risk management questions. Federated is a Partner in EMA’s Board of Directors Council.
At Federated Insurance, It’s Our Business to Protect Yours®
The Question of the Month is provided by Zywave®, a company wholly independent from Federated Insurance. Federated provides its clients access to this information through the Federated Employment Practices Network with the understanding that neither Federated nor its employees provide legal or employment advice. As such, Federated does not warrant the accuracy, adequacy, or completeness of the information herein. This information may be subject to restrictions and regulation in your state. Consult with your own qualified legal counsel regarding your specific facts and circumstances.
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