IRS provides dyed diesel fuel excise tax relief following President Trump’s executive order

 The IRS has announced that, in response to President Trump’s October 5, 2026, executive order, 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. During the relief period, taxpayers need not maintain records necessary to substantiate their eligibility for relief.

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

KPMG observation

At present, the federal relief appears to provide for a deferral of tax rather than a tax holiday. Taxpayers may also want to consider operational issues when the federal relief expires after December 31, 2026. In particular, there may be challenges in flushing fuel lines so that no dye remains in a vehicle fuel tank and could result in a penalty risk beginning on January 1, 2027.

In addition, although many states have provided similar dyed diesel fuel relief, not all states have done so, and the scope of state relief may vary. Taxpayers therefore need to be cautious in traveling between states as one state may have granted relief, but another state may not have.
 

For more information, contact a KPMG tax professional in the Excise Tax Practice group:

Taylor Cortright | tcortright@kpmg.com

Rachel Smith | rachelsmith1@kpmg.com

Mckenzie Mixon| mmixon@kpmg.com