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IRS FAQs Clarify Dyed Diesel Relief: Seller Liability, Form 720, and LUST Tax

Mon, 26 Oct 2026 20:45:27 GMT

EMA Regulatory Alert

Regulatory Alert

IRS FAQs Clarify Dyed Diesel Relief: Seller Liability, Form 720, and LUST Tax

Monday, October 26, 2026 – On October 23, 2026, the IRS issued 11 Frequently Asked Questions (FAQs) on the temporary federal excise tax relief for dyed diesel sold for use or used on the highway from October 1 through December 31, 2026. The FAQs supplement IR-2026-122 and IR-2026-125 and answer several questions raised by EMA members. EMA appreciates the Administration’s continued engagement with the industry.

Key Clarifications

1. Seller presumption. During the relief period, sellers are presumed not to know or have reason to know that dyed diesel is used in a highway vehicle (FAQ 7). For purposes of the temporary relief, this presumption protects sellers from Internal Revenue Code § 4041(a) liability arising solely from a customer’s subsequent highway use. It does not constitute forgiveness of the underlying tax.

2. No Form 720 reporting or recordkeeping. Covered dyed diesel transactions need not be reported on Form 720, including fourth quarter returns otherwise due February 1, 2027 (January 31 falls on a Sunday), and records need not be kept or later reconstructed solely to substantiate § 4041(a) liability (FAQs 1–3). Filing and recordkeeping for other taxes, exemptions, credits, and refunds continue.

3. LUST tax. The $0.001-per-gallon LUST tax still applies when dyed diesel leaves the terminal, but it is not imposed again on later highway sale or use (FAQ 10).

4. Scope. The relief covers dyed biodiesel mixtures but not clear diesel or dyed kerosene, and it creates no new obligations for distributors, retailers, purchasers, or end users (FAQs 4, 8, 9).

5. Dyed-fuel notices. “Nontaxable use only” notices (signs) required by Treas. Reg. § 48.4082-2 need not be retained during the relief period but must be restored on January 1, 2027 (FAQ 11).

6. Residual dye. The IRS is considering a grace period for dye remaining in tanks after December 31, but none has been announced (FAQ 6). EMA members should plan as though ordinary enforcement resumes January 1.

7. State law. The federal relief does not affect state fuel taxes or dyed-fuel rules, including for interstate travel (FAQ 5). EMA members should confirm requirements with each state.

Open Questions

The IRS has not eliminated the underlying tax. IR-2026-122 framed the relief as a postponement of payment under § 7508A and said only that the IRS would explore eliminating deferred amounts, so the disposition of any deferred tax and interest remains unresolved. EMA continues to press the White House, Treasury, and the IRS on this issue and the year-end transition.

EMA members should retain ordinary commercial records and copies of the IRS FAQs and related releases. Although FAQs not published in the Internal Revenue Bulletin are not precedential authority, reasonable, good-faith reliance on them may provide protection against penalties for which reasonable cause is a defense.

For questions, contact EMA Regulatory Counsel Jeffrey L. Leiter ( jleiter@bmalaw.net ) or Jorge Roman ( jroman@bmalaw.net ).

This alert is provided for general informational purposes only and does not constitute legal or tax advice.

Iowa Department of Revenue Guidance on Dyed Diesel Fuel

Tue, 20 Oct 2026 14:12:03 GMT

On Thursday, October 15, 2026, the Iowa Department of Revenue (IDR) issued further guidance following the proclamation issued by Governor Kim Reynolds on October 5, 2026, and expanded on October 6, 2026. The IDR guidance can be viewed here.

The guidance issued by IDR makes clear that dyed diesel fuel gallons used for an on-road purpose during the term of Governor Reynolds proclamation will be subject to repayment of the 6 percent sales tax after the proclamation expires on February 4, 2027 . As the proclamation relates to sales tax, end-users should treat relief granted under the proclamation as a deferment of payment in lieu of an outright exemption. Regarding state motor fuel excise tax ($32.5 cpg), IDR does not anticipate recouping the state excise tax that would otherwise be due for on-road use of dyed diesel fuel after the proclamation expires.

FUELIowa members should encourage customers to exercise caution around the use of dyed diesel fuel for an on-road purpose following the guidance issued by IDR. All dyed diesel fuel transfers between FUELIowa members and end-use customers should be documented with an Iowa Sales Tax Exemption Certificate signed by your end-use customer. A sales tax exemption certificate can be found here.

By using this approach, FUELIowa members are not placed in a position of having to decipher between dyed diesel fuel gallons consumed by an end-user between on-road use and off-road use and the end-user is responsible for documenting and remitting the state sales tax owed after February 4, 2027.

IRS Announces Temporary Penalty Relief for Highway Use of Dyed Diesel Fuel

Thu, 15 Oct 2026 16:19:57 GMT

Thursday, October 15, 2026 – The IRS announced Wednesday evening that it will not impose federal penalties when dyed diesel fuel is sold for highway use or used in diesel-powered vehicles on public highways nationwide. The announcement implements President Trump’s October 5, 2026, Executive Order 14435, “Emergency Tax Relief on Diesel Fuel.”

The IRS announcement states that its penalty relief is retroactive to October 1, 2026, and remains in effect through December 31, 2026. The October 1 date comes from the IRS announcement; the Executive Order itself specifies an October 5 start date. Forthcoming payment-deferral guidance under Internal Revenue Code § 7508A may track the Executive Order’s October 5 date, in which case, fuel sold between October 1 and 4 would be free of penalties but would not eligible for any payment deferral.

Penalties, Inspections and Recordkeeping

Ordinarily, dyed diesel fuel is exempt from federal excise tax because it is intended for exempt uses, such as farming and in off-highway machinery. Federal law generally imposes tax when dyed diesel is sold for highway use or used in a diesel-powered on-highway vehicle. The retailer that sells dyed diesel for highway use is generally liable for the tax; where the fuel is not purchased at retail, such as fuel drawn from a farm storage tank, the vehicle operator is liable.

During the relief period, the IRS states that it will not impose penalties related to the federal excise tax on dyed diesel fuel sold for highway use or used in highway vehicles. This includes penalties for failure to make required semimonthly tax deposits and failure to maintain adequate records.

The Service also announced that it will suspend its ordinary collection and enforcement procedures during the relief period, that IRS Fuel Compliance Officers will be reassigned to other responsibilities, and that no federal inspections of on-road dyed-fuel use will occur.

Sellers and distributors are not required to investigate or document the ultimate end use of dyed diesel fuel sold during this period. The announcement also states that taxpayers need not maintain records necessary to substantiate their eligibility for this relief. That statement concerns eligibility for this particular relief and should not be read as a general suspension of other business, tax, or recordkeeping obligations.

The Tax Has Not Yet Been Waived

The announcement does not eliminate the underlying federal excise tax liability. The IRS anticipates issuing additional guidance addressing postponement of payments under Internal Revenue Code § 7508A for taxes imposed under § 4041; that postponement is not yet in effect. No forgiveness has been granted. The IRS states only that it will explore avenues to eliminate the obligation to pay deferred amounts, and permanent forgiveness will likely require legislation. The announcement also does not address interest on any tax that remains due.

Forthcoming guidance is expected to explain how the relief applies to Form 720, Quarterly Federal Excise Tax Return, and other relevant forms. The fourth-quarter Form 720 is due January 31, 2027. Until additional guidance is issued, marketers should not assume that the underlying federal diesel tax has been forgiven or that related payment and filing obligations have been eliminated.

State Taxes and Enforcement

The relief applies only to federal taxes and penalties. It does not prevent states from imposing their own taxes or penalties for highway use of dyed diesel fuel. Although many states have announced similar relief, state requirements vary. EMA members should consult the applicable state agencies regarding the availability and scope of state-level relief.

EPA Requirements and the End of the Relief Period

The IRS relief is not an EPA fuel waiver. Prior IRS dyed-fuel waivers were limited to fuel meeting the 15-ppm sulfur standard, and dyed product sold for highway use should continue to meet the ultra-low sulfur diesel (ULSD) standard. Texas is the exception. EPA's October 5, 2026, emergency waiver suspends the ULSD and Texas Low Emission Diesel (TxLED) requirements for eligible engines through October 24, 2026. Higher-sulfur product must be segregated and carry EPA's misfueling warning.

Federal penalties resume January 1, 2027. Because red dye can remain in vehicle tanks and retail storage for weeks, marketers should plan the transition back to clear product.

What Members Should Consider

Keep records anyway. Although the IRS will not require records to substantiate eligibility for the relief, marketers should continue tracking gallons of dyed diesel sold to highway vehicles, by date and location. If the deferred tax ultimately comes due, those records will be the best defense against an IRS estimate of liability.

Make a deliberate pricing decision. Retailers that do not collect the 24.4-cent federal tax at the pump now may find it difficult to recover from customers later.

Identify who is liable. The announcement does not define “retail.” For cardlock sales, bulk deliveries into fleet tanks, and mobile fueling, it may be unclear whether the seller or the operator owes the tax.

Review contracts. Branded supply agreements, fleet card product codes, and insurance policies may restrict or affect the sale of dyed product through highway dispensers.

EMA will continue to monitor Treasury and IRS guidance, particularly regarding payment postponement, potential tax forgiveness, and the treatment of federal excise tax returns and deposits.

Click here to read the IRS news release.

Update on Proclamation Related to Dyed Diesel Use

Tue, 13 Oct 2026 20:42:06 GMT

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Last week, President Donald Trump and Iowa Governor Kim Reynolds issued concurrent orders suspending enforcement of regulations overseeing dyed diesel fuel use. As it stands today, the federal proclamation allows dyed diesel fuel used for a taxable purpose (on-road use) to have the federal excise tax of 24.4 cpg deferred for the period of October 5, 2026, through December 31, 2026. Executive Order 14435 directs the Secretary of the Treasury to exercise the authority to allow the excise tax deferred to be deferred without penalty, interest, additional amount, or additional tax. The federal Executive Order directs the Secretary of the Treasury to explore avenues, including future legislation to eliminate the obligation to pay the amount of excise tax deferred during the deferment period outlined in the federal order.

At the time of this publication, no further guidance has been issued by the Secretary of the Treasury.

Concurrently, Iowa Governor Kim Reynolds issued a proclamation temporarily suspending regulatory provisions of Iowa Code Section 452A.74A(1) that restrict the use of dyed diesel for highway transportation in motor vehicles hauling soybeans, corn, hay, straw, silage, stover, distillers grains, soybean meal, livestock, livestock feed, fertilizer (dry, liquid, and gas) and manure (dry and liquid) and other farm products. Regulatory provisions from the sale and use of such fuel for the same uses are also suspended. The proclamation applies to loads transported on any public road within Iowa and covers state excise tax (32.5 cpg) and state sales tax. Iowa’s proclamation expires on February 2, 2027.

Although both the federal Executive Order and state proclamation intend to provide relief to diesel end-users, Iowa’s proclamation is narrower in its scope and limits its eligibility to the movement of the products listed above. It is FUELIowa’s recommendation that fuel marketers and carriers in Iowa adhere to the terms of Iowa’s proclamation.

For Fuel marketers serving farmers and commercial end-users, if you have reason to know your end-user is not eligible for the relief granted in the state proclamation, do not sell dyed diesel fuel to your customer. In transactions where you do sell dyed diesel fuel to your customer, FUELIowa recommends documenting the sale with a state of Iowa sales tax exemption certificate . As a reminder, all dyed-diesel fuel sales in Iowa are presumed to be subject to sales tax unless a specific exemption applies. Last, with the heightened focus on dyed diesel fuel, it is a good time to review all storage tanks and retail dispensers where dyed diesel is stored or dispensed. All storage tanks and dispensers where dyed diesel fuel is available should be labeled with the following statement “ Dyed Diesel Fuel, Non-Taxable Use Only, Penalty for Taxable Use .”

EMA Regulatory Alert: PHMSA Issues Final Preemption Determination Protecting Uniform Federal Standards for Gasoline Transportation

Mon, 21 Sep 2026 16:21:30 GMT

Monday, September 14, 2026 – EMA is pleased to report a significant regulatory victory for the fuel distribution industry. The Pipeline and Hazardous Materials Safety Administration (PHMSA) has issued a final administrative determination concluding that the Hazardous Materials Transportation Act (HMTA) and the Hazardous Materials Regulations (HMR) preempt state common law tort claims concerning the marking, employee training, loading and unloading operations, and hazardous materials classification of gasoline transported by cargo tank motor vehicles (CTMVs). EMA actively participated in this proceeding and the final determination vindicates the position EMA advocated on behalf of the fuel marketing industry.

Background

Earlier this year, EMA submitted formal comments to PHMSA supporting Exxon Mobil Corporation's petition for a preemption determination under HMTA. The petition arose from state tort litigation seeking to impose obligations on gasoline marketers — including additional benzene-specific warning labels, carrier-level employee training duties, loading equipment redesign, and product reclassification — that went beyond what the HMR requires.

EMA was explicitly recognized by the agency among a broad coalition supporting preemption that included the American Petroleum Institute, U.S. Chamber of Commerce, Western States Petroleum Association, and 17 State Attorneys General. EMA argued that allowing state tort claims to function as de facto regulatory requirements would fracture the uniform federal framework that protects both safety and interstate commerce, creating a patchwork of conflicting obligations. EMA's comments specifically highlighted the operational consequences for small and mid-sized fuel distributors — including compliance cost escalation, disruption to interstate fuel resiliency, and the procedural irregularity of imposing regulatory duties through tort litigation rather than notice-and-comment rulemaking.

PHMSA's Ruling and Analysis

In a nutshell, PHMSA determined that the HTMA and HMR fully preempt State common law tort claims, reaffirming that 49 U.S.C. 5125(a) and (b) contain independent bases for preemption. PHMSA's notice included a topic-by-topic analysis addressing each claim category:

Container Marking and Shipping Papers. PHMSA found that state common law duties requiring benzene-specific cancer warnings on gasoline containers and shipping papers are preempted. The HMR already provides an exhaustive, globally harmonized hazard communication system under 49 CFR Part 172. State-specific supplementary warnings are not "substantively the same" as HMR requirements and would undermine the uniform, immediately recognizable hazard indicators that first responders rely on.

Employee Training . PHMSA found that state tort duties imposing training obligations beyond the HMR's standardized framework — including duties directed at employees of third-party carriers — present an obstacle to the Federal training scheme under 49 CFR Part 172, Subpart H. The agency noted that a patchwork of state-specific training regimes would burden national carriers that routinely cross state lines. Notably, PHMSA also emphasized that requiring a fuel company to train third-party drivers is in direct conflict with the HMR's well-established definitions of hazmat employer and hazmat employee.

Loading and Unloading Equipment Design. PHMSA confirmed that loading arm design and operational specifications applicable to bulk gasoline facilities are captured by the HMR. State tort judgments finding federally compliant loading equipment "defective" would effectively impose new, localized design requirements — constituting non-federal requirements concerning the designing and fabricating of packaging components that are not substantively the same as the HMR. The agency reasoned that “forcing operators to retrofit loading equipment to satisfy disparate State jury verdicts presents a substantial obstacle to the safe, uniform transportation of gasoline in interstate commerce.”

Hazardous Material Classification. PHMSA held that any state common law duty that would require gasoline to be treated as something other than a Class 3 flammable liquid — effectively compelling product redesign to eliminate benzene — would constitute an impermissible re-classification that directly conflicts with the HMR's internationally harmonized classification scheme.

Judicial Review is Possible

Any party aggrieved by PHMSA's determination may file a petition for reconsideration within 20 days of Federal Register publication, or seek judicial review in an appropriate United States Court of Appeals within 60 days.

EMA will monitor any challenge and keep members informed of further developments.

"This determination is a win for every fuel marketer in America. Uniform federal standards exist for a reason — they keep drivers safe, supply chains moving, and small businesses out of an impossible maze of conflicting state requirements. PHMSA got this right," stated EMA President Rob Underwood.

Reminder - E15 Access Mandate Safe Harbor Deadline

Mon, 21 Sep 2026 16:17:59 GMT

Iowa’s E15 mandate took effect January 1, 2026. Due to the scope of infrastructure work required, the Iowa Department of Agriculture and Land Stewardship (IDALS) established a safe harbor policy allowing retailers to extend their compliance deadline to September 30, 2026.

To qualify, retailers were required to provide evidence of an agreement with an Iowa-licensed installer for future E15 infrastructure work, such as an equipment purchase order, work order, installation agreement, contract, or invoice. A submitted, active application for an Iowa Renewable Fuels Infrastructure Program (RFIP) E15 cost-share grant also satisfied the requirement. All projects covered by safe harbor must be completed by September 30, 2026.

Safe harbor applies to an individual retail location and is separate from a Class I, Class II, or small retail facility waiver from Iowa’s E15 mandate.

FUELIowa members, including owners and licensed service professionals, experiencing challenges meeting the deadline should contact John Maynes to pursue a solution.

Regulatory Alert FMCSA Grants 90-Day Hours-of-Service Waiver for Gasoline and Diesel Hauls

Mon, 21 Sep 2026 16:07:43 GMT

Thursday, September 17, 2026 – The Federal Motor Carrier Safety Administration has issued a 90-day hours-of-service waiver for motor carriers and drivers operating commercial motor vehicles in interstate commerce to transport gasoline and diesel fuel. The waiver took effect at 12:00 a.m. on September 16, 2026, and expires at 11:59 p.m. on December 16, 2026.

FMCSA granted the relief to support timely fuel distribution amid global supply-chain disruptions and anticipated increases in late-summer and fall demand, including agricultural harvesting. The agency determined that the limited waiver is in the public interest and, with the conditions below, is likely to achieve a level of safety equivalent to, or greater than, the level that would be achieved absent the waiver.

Why this matters to energy marketers

Reliable inbound gasoline and diesel deliveries are essential to retail, wholesale, and commercial fuel operations. The waiver gives eligible carriers additional operating flexibility when demand rises, provided they satisfy the waiver's safety, documentation, and reporting requirements. The waiver is relevant both to marketers that operate their own delivery fleets, which are motor carriers in their own right, and to marketers that rely on third-party carriers.

Key operating terms

Drivers may drive no more than 16 hours in any 24-hour period. That cap applies even if another HOS exception, waiver, or exemption is also in use.
In each 24-hour period, the driver must take either a minimum six-consecutive-hour break in the sleeper berth or, if there is no sleeper berth, a minimum eight-consecutive-hour off-duty break.
If a driver says immediate rest is needed, the carrier must allow the driver to stop at a safe location and take at least 10 consecutive hours off duty before driving again.
The waiver also applies while the driver returns empty to the carrier's terminal or the driver's normal work-reporting location. The 10-hour rest-on-request requirement described above applies during the return trip as well.
When a driver moves from waiver operations back to normal HOS, a 10-hour break is required if total on-duty time under the waiver—or combined waiver and normal operations—equals or exceeds 14 hours.
Drivers must carry a physical or digital copy of the waiver and present it to law enforcement on request.
All other FMCSRs remain in effect, including records-of-duty-status and electronic-logging requirements, CDL requirements, drug and alcohol testing, insurance, hazardous materials, and size-and-weight rules.

Who may use the waiver

Eligible operations are limited to gasoline and diesel transportation. The waiver does not extend to other products that many marketers deliver, such as heating oil, kerosene, propane, or jet fuel. Drivers must hold a valid CDL with required endorsements and must not be subject to an out-of-service order, disqualification, or loss of driving privileges. Motor carriers with a conditional safety rating are excluded. Any carrier or driver under an active out-of-service order is also excluded until the order is rescinded in writing.

Oversight and reporting

Carriers must notify FMCSA by email to MCPSD@DOT.GOV within two business days of any crash, as defined in 49 CFR 390.5T, involving a driver operating under the waiver. The notice must include the crash location; driver and vehicle identifiers; injuries and fatalities; the police-reported cause of the crash, if available; citations; the driver's total on-duty time during the seven consecutive days preceding the crash; and the total on-duty and driving time during the work shift preceding the crash. Carriers must also collect and provide to FMCSA on request the total number of drivers who operated under the waiver. Carriers should begin tracking waiver use now so they can respond promptly to any such request. FMCSA may revoke the waiver in whole or as to a specific carrier or driver if safety declines.

State preemption

While the waiver is in effect, states may not enforce interstate rules that conflict with it for drivers and carriers operating under the waiver. States may adopt matching relief for intrastate operations. The federal waiver does not itself cover intrastate deliveries. Unless a state adopts matching relief, intrastate operations remain subject to that state's hours-of-service rules.

Energy marketers should confirm that their carriers understand and satisfy the eligibility and operating conditions before using the waiver. Marketers that operate their own fleets should apply the same review to their own drivers and operations. Each participating driver must carry a physical or digital copy of the waiver, and carriers should retain a copy with their compliance materials.

Marketers should also keep in mind that the waiver permits additional hours but does not require them. Federal rules prohibit motor carriers, shippers, receivers, and transportation intermediaries from coercing drivers to operate in violation of the FMCSRs (49 CFR 390.6), including pressuring a driver who has requested rest to keep driving. Compliance with the waiver also will not, by itself, shield a company from liability if a fatigued driver is involved in a crash. Marketers should consider adopting a written policy that driver rest requests will be honored without penalty.

To read FMCSA’s Grant of Waiver, click here .

This alert is provided for general informational purposes only and does not constitute legal advice.