The IRS will waive federal excise tax penalties for the sale and highway use of dyed diesel from 1 October to 31 December 2026, suspending related inspections and recordkeeping requirements while leaving state fuel tax rules unchanged.
The US Internal Revenue Service (IRS) announced on 14 October 2026 that it will not impose penalties when dyed diesel fuel is sold or used on highways. The decision follows a presidential executive order on emergency tax relief for diesel fuel.
The relief period retroactively runs from 1 October 2026 through 31 December 2026. Any person who sells dyed diesel fuel for highway use or operates a vehicle using such fuel qualifies for the exemption.
Enforcement paused across the board
The IRS has suspended ordinary procedures for collection and enforcement during the relief window. All Fuel Compliance Officers have been reassigned. No federal inspections of on-road dyed fuel usage will take place. Taxpayers no longer need to maintain records that would normally substantiate their eligibility for relief. Sellers and distributors do not have to verify or document how purchasers will use the fuel.
Penalties will not apply for failure to make deposits or keep adequate records related to this excise tax. The IRS cited 26 U.S.C. 4041(a)(1)(A) and 26 U.S.C. 4041(b)(1)(B) as the relevant tax provisions.
State taxes remain unchanged
This federal relief applies only to federal taxes. State governments continue to enforce their own fuel tax rules and penalties on dyed diesel used on highways. States have been moving independently on relief. The IRS recommends that taxpayers check with their state agencies for current information on state-level relief.
The IRS plans to issue further guidance under 26 U.S.C. 7508A on postponement of tax payments. Additional guidance will address how Form 720 (Quarterly Federal Excise Tax Return) and other forms apply during the relief period.
Earlier, US President Donald Trump signed an executive order on 5 October 2026 to expand access to tax-exempt red-dyed diesel by removing off-road use restrictions, allowing buyers across sectors to purchase the fuel without federal excise taxes.
