The Internal Revenue Service has announced that, in response to the President’s October 5, 2026 Executive Order, Emergency Tax Relief on Diesel Fuel, it will not impose a penalty when dyed diesel fuel is sold for use or used on highways nationwide.

The relief is retroactive to October 1, 2026, and will remain in effect until December 31, 2026. Relief is available to any person who sells dyed diesel fuel or uses dyed diesel fuel for highway use. This notice provides penalty relief only. The federal tax itself has not yet been deferred or waived; the IRS anticipates further guidance on a deferral. Elimination of the tax liability for this period will likely take an Act of Congress.

Ordinarily, dyed diesel fuel is not subject to tax because it is destined for an exempt use, such as use on a farm for farming purposes; however, it would be taxed if sold for highway use or used to power a vehicle on the highway. Generally, the person liable for the tax is the person who sells dyed diesel fuel at retail or, if the dyed diesel fuel is not purchased at retail, the operator of the motor vehicle (e.g., dyed diesel fuel held in a storage tank on a farm).

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.

The IRS anticipates that it will issue further guidance as to the postponement under 26 U.S.C. 7508A of payment of taxes imposed by 26 U.S.C. 4041(a)(1)(A) or by 26 U.S.C. 4041(b)(1)(B) and will explore avenues to eliminate the obligation to pay any amounts deferred. Forthcoming IRS guidance will detail how this relief applies to Form 720 (Quarterly Federal Excise Tax Return) and any other relevant forms.

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. Here is a list of states that have provided some form of emergency relief.

In addition, the IRS relief does not include a fuel waiver from the Environmental Protection Agency. Prior IRS dyed-fuel waivers were limited to fuel meeting the 15-ppm sulfur standard, and dyed product sold for highway use should continue to meet the ultra-low sulfur diesel (ULSD) standard.

For practical purposes, there is also the question of whether using heating oil as a fuel for an on-road engine might damage the engine. Heating oil is chemically very similar to dyed diesel fuel but is made to a different specification (ASTM D396). Additionally, heating oil now commonly contains biodiesel blends of at least 5% (ASTM D396 now allows up to a 50% blend of biodiesel). This could cause issues for some highway engines. Dealers should be careful not to certify or guarantee to customers that heating oil is an appropriate fuel for on-road use.

NEFI advises that dealers should continue to collect the tax for any on-road use and keep records of all such sales, including deliveries to fleet or farm tanks.

Further, if a NEFI member fuels its own trucks with dyed diesel, it is liable for the tax as the operator of the vehicle until such time as the tax liability is waived. Members should keep records of any on-road use of dyed diesel in their own trucks, and pay the tax quarterly using IRS Form 720.

Moreover, at least one truck leasing company has advised companies to avoid using dyed diesel fuel for on-road applications. Penske asks that all customers continue using approved on-road diesel fuel in Penske equipment. The use of dyed diesel fuel in Penske fuel tanks is not permitted currently.

In addition, the American Trucking Associations has issued the following recommendations:

• Do not change fueling practices solely on the basis of the Executive Order.

• Delay use of dyed diesel for on-road use until Treasury has issued its further guidance.

• Confirm eligibility, supplier participation, state requirements, and reporting treatment.

• Retain complete fuel-purchase and mileage records.

• Do not assume deferred taxes have been eliminated or change fuel-surcharge arrangements based on advertised savings alone.

• Be aware that the use of dyed diesel can stain fuel systems, leaving residual evidence of dyed diesel that could be subject to enforcement measures after federal and state enforcement relief has expired.

• Before using dyed diesel, check with your equipment supplier to ensure that there are no warranty implications.

NEFI will continue to monitor this situation and provide updates as necessary. For any questions regarding this issue, or other regulatory issues, contact NEFI Regulatory Counsel Rick Schweitzer at rpschweitzer@rpslegal.com.