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Oct. 23, 2026
Q1. Are taxpayers obligated to maintain records of dyed diesel distribution, sale, or purchase during the relief period, and if not, must they maintain any documentation of those activities?
No, taxpayers are not obligated to maintain records or any documentation of dyed diesel distribution, sale, or purchase during the relief period. The IRS will not challenge a failure to create or maintain records solely to substantiate liability arising from taxable uses of dyed diesel during the relief period identified in IR-2026-122 and IR-2026-125. There is also no requirement to reconstruct those records for fuel used during the relief period after the relief period ends. However, records independently required for another tax or to support a claim for exemption, credit, or refund will still be necessary. This relief also does not cover retention of records of distribution, sale, or purchase for purposes unrelated to the section 4041(a) federal dyed diesel excise tax, or for any taxable use of dyed diesel after the relief period.
Q2. Must taxpayers who ordinarily file returns on Form 720 report dyed diesel distributed, sold, or purchased during the relief period on Form 720?
No, taxpayers are not required to report dyed diesel distributed, sold, or purchased during the relief period on Form 720 or otherwise, even if the return is due after the relief period ends. This includes the fourth-quarter Form 720, which is generally due Jan. 31 of the following year. A taxpayer that must file Form 720 to report liability for other taxes must still file the return and report those other liabilities, but the IRS will not challenge a failure to report liability on such forms for section 4041(a) federal dyed diesel excise tax arising from sales during the relief period.
Q3. Must taxpayers who do not ordinarily file returns on Form 720 report dyed diesel distributed, sold, or purchased during the relief period on Form 720?
No, taxpayers are not required to report dyed diesel sold for use during the relief period on Form 720 or otherwise, even if the return is due after the relief period ends. The IRS will not challenge a failure to file Form 720 solely to report liability for section 4041(a) federal dyed diesel excise tax arising from sales during the relief period. Taxpayers will not be required to report those sales later.
Q4. Do distributors, retailers, purchasers, or end-users have new obligations during the relief period?
No, IR-2026-122 and IR-2026-125 do not create any new obligations for distributors, retailers, purchasers, and end-users who use dyed diesel during the relief period. Applicable tax requirements for other federal taxes remain in place.
Q5. How does the relief apply to interstate travel involving states that have not offered dyed-fuel relief?
The relief announced in IR-2026-122 and IR-2026-125 only addresses federal dyed diesel excise taxes. The announced relief does not address any state-imposed fuel-taxes or dyed-fuel requirements. Contact state officials for more information regarding state-imposed fuel-taxes or dyed-fuel requirements.
Q6. Will the IRS provide a grace period for enforcement after the relief period ends because dyed fuel may remain in tanks after the relief period?
The IRS is considering a grace period or other measures to address residual red dye in tanks, with further guidance to follow.
Q7. Could a seller or distributor become liable for the dyed diesel excise tax if the fuel is ultimately used on-road by the end-user?
No. For the limited purpose of the relief announced in IR-2026-122 and IR-2026-125, a seller of dyed diesel fuel during the relief period will be presumed not to know or have reason to know that any dyed diesel fuel is used in a diesel-powered highway vehicle.
Q8. Does the relief affect federal excise taxes on clear diesel or dyed kerosene?
No. The relief announced in IR-2026-122 and IR-2026-125 only applies to federal dyed diesel excise taxes. It does not apply to any federal taxes on clear diesel or dyed kerosene.
Q9. Does the relief apply to dyed biodiesel mixtures?
Yes. The relief announced in IR-2026-122 and IR-2026-125 does apply to dyed biodiesel mixtures.
Q10. How does the relief affect the $0.001-per-gallon LUST tax?
The $0.001-per-gallon Leaking Underground Storage Tank (LUST) tax generally applies when dyed diesel leaves the terminal. If that tax was already imposed, it is not imposed again when the fuel is later sold for use or used on the highway.
Q11. Will distributors or sellers be penalized for modifying or removing the “nontaxable use only” notices required by Treasury Regulation § 48.4082-2?
No. Distributors and sellers are not expected to retain “nontaxable use only” signs during the relief period. However, the notices must be restored once the relief period ends.