The Internal Revenue Service has announced that there will be no future tax penalties on the current federally-sanctioned use of red dye diesel.
The President issued an Executive Order on October 5th, 2026 ordering no tax penalty on red dye diesel, even when sold for use on highways, through December 31st. Shortly thereafter, trucking and fuel industry leaders began warning of potential tax penalties if red dye diesel was used due to the lack of clarification from government entities. Now, the IRS has confirmed that the tax penalty will be waived retroactively from October 1st through December 31st.
“During the relief period, ordinary procedures for collection and enforcement will be suspended. All IRS Fuel Compliance Officers will be re-assigned other responsibilities, and no federal inspections of on-road dyed fuel usage will occur,” the IRS wrote in a release.
“During the relief period, taxpayers need not maintain records necessary to substantiate their eligibility for relief. The IRS will not impose any penalties related to the excise tax for dyed diesel fuel sold for use or used in diesel-powered vehicles on highways nationwide during the relief period. This relief includes penalties for failure to make semimonthly deposits of tax or to maintain adequate records. Sellers and distributors are under no obligation to investigate or document the ultimate end-use of dyed fuel sold during the relief period.”
However, the IRS does state that the federal tax suspension does not affect any state taxes that may or may not be collected.
“This relief only applies for federal tax purposes. It has no effect on state fuel taxes and penalties that a state may impose on the use of dyed diesel fuel on the highway. Many, but not all, states have provided similar state excise tax-related relief. Taxpayers are encouraged to refer to their applicable state agencies for the latest guidance on state-level relief,” the release states.
