Update: Diesel Fuel Tax Provisions

Earlier this month, Executive Order, Emergency Tax Relief on Diesel Fuel, was signed by the President with the purpose of deferring certain diesel fuel tax payment obligations and to provide penalty relief. As a result, the IRS acted and indicated it will not impose a penalty when dyed diesel fuel is sold for use or used on highways nationwide.

Temporary federal diesel fuel relief

This is a retroactive provision to October 1, 2026, that will run through the end of the year. It is applicable to any person that sells dyed diesel fuel or uses dyed diesel fuel for highway use.

During the relief period, ordinary procedures for collection and enforcement will be suspended. This includes:

• All IRS Fuel Compliance Officers will be reassigned other responsibilities, and no federal inspections of on-road dyed fuel usage will occur.
• Taxpayers need not maintain records necessary to substantiate their eligibility for relief. This includes suspension of penalties for failure to make semi-monthly deposits of tax.
• 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. This means sellers and distributors are under no obligation to investigate or document the ultimate end-use of dyed fuel sold.

State fuel requirements still apply

It is important for farmers to understand that this is federal tax relief and has no impact on state fuel taxes and penalties. As of October 20, no states in Farm Credit East’s territory have provided similar relief, but we will keep a lookout for any updates. As a result, farmers can still be penalized by the state for not adhering to the rules.

USDA harvest relief payments

Additionally, the U.S. Department of Agriculture has announced  that it will make $8 billion available for one-time payments to American farmers to provide relief due to market disruptions and increased input costs.

Learn more what producers need to know about this program in this previous blog article.

Next steps

The IRS is expected to issue additional guidance on the payment of these taxes and how it interacts with Form 720 (Quarterly Federal Excise Tax Return) and other forms.

If a farmer believes they qualify for relief but receives a penalty notice, they should follow the instructions in the notice or contact the IRS.