IRS Offers Fuel Supply Disruption Tax Relief

In response to the recent fuel crisis, the IRS has just indicated it will not impose a penalty when dyed diesel fuel is sold for use or used on the highway in 12 states.

These states include: Alabama, Delaware, Georgia, Florida, Louisiana, Maryland, Mississippi, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia and the District of Columbia. This pronouncement (IR-2021-108, 5/133, 2021), which is retroactive to May 7, 2021, will remain in effect through May 21, 2021.

Normally, dyed diesel fuel is not taxed, because it is sold for certain uses that are exempt from excise tax, such as to farmers for farming purposes, for home heating use and to local governments. Thus, the pipeline shutdown has resulted in a temporary reprieve for average people traveling in their vehicles.

Specifically, the special tax exemption is available to any person that sells or uses dyed diesel fuel for highway use. In the case of the operator of the vehicle in which the dyed diesel fuel is used, the relief is available only if the motorist or the person selling such fuel pays the tax of 24.4 cents per gallon that is generally applied to diesel fuel for highway use.

Have we heard the last word on this subject? We’re not sure. The IRS says it will continue to monitor the situation and will provide additional relief as needed.