IRS Waives Dyed Diesel Tax Penalty Due to Hurricane

2 September 2005

In response to the growing shortage of on-road diesel fuel resulting from the disruptions caused by Hurricane Katrina, the IRS is waiving the tax penalty for the sale or use of dyed diesel fuel on the highway.

This relief applies beginning 25 August in Florida; 30 August in Alabama, Louisiana, and Mississippi; and 31 August in the rest of the United States. It remains in effect through 15 September.

Both the IRS and the EPA use a red dye to designate different qualities of fuel. The IRS uses the red dye to identify diesel normally sold for uses exempt from excise tax, such as to farmers for farming or to local governments for buses.

The EPA uses a red dye to designate high-sulfur, off-road diesel. The IRS waiver might get confusing, except that the EPA has also waived its low-sulfur requirements in response to Katrina. (Earlier post.)

Selling dyed diesel for the wrong applications carriers penalties at the federal level from the IRS and EPA, and also at a state level, where it can even be considered a felony.

The IRS relief is available to any person that sells or uses dyed fuel for highway use. In the case of the operator of the vehicle in which the dyed fuel is used, the relief is available only if the operator or the person selling the fuel pays the tax of 24.4 cents per gallon.