IRS Suspends Dyed Diesel Highway-Use Penalties Through Year End
The IRS said in IR-2026-122 that it will not impose penalties when dyed diesel fuel is sold or used on highways nationwide, acting on President Trump's Oct. 5 executive order, Emergency Tax Relief on Diesel Fuel. The relief runs retroactively from Oct. 1 through Dec. 31, 2026.
Dyed diesel is normally tax-exempt for off-highway uses like farming, but becomes taxable if sold or used on highways. The IRS said the retailer selling the fuel, or the vehicle operator if purchased off-retail, is ordinarily liable for that tax.
During the relief period, the agency is suspending normal collection and enforcement. Fuel Compliance Officers will be reassigned and no on-road inspections of dyed fuel will occur. Taxpayers do not need to keep records to prove eligibility, and sellers have no obligation to track how buyers use the fuel. The relief covers penalties for missed semimonthly tax deposits and inadequate recordkeeping.
The IRS said it expects to issue further guidance on postponing related excise tax payments under separate code sections, and on how the relief applies to quarterly excise tax filings. The notice stressed the relief applies only to federal tax; state dyed-diesel rules and penalties are unaffected and vary by state.
What's next
- 2026-12-31: Federal penalty relief period ends.
- IRS says further guidance is coming on tax payment postponement and Form 720 filing treatment.
- Carriers should confirm separately whether their operating states have matched this relief.
All sources
- IRS provides dyed diesel fuel relief related to excise tax following President Trump’s Executive Order — Government site: IRS (.gov), 2026-10-15
