The IRS has announced that it will not challenge temporary failures to meet return-filing, reporting, or recordkeeping requirements that arise from taxable uses of dyed diesel under IRC § 4041(a). This administrative relief applies to taxable uses occurring on or after October 1, 2026, and before January 1, 2027. (IR 2026-125, 10/21/2026)
Specifically, the relief covers:
- Filing Form 720, Quarterly Federal Excise Tax Return, solely to report this liability;
- Reporting the liability on an otherwise required Form 720; and
- Creating or maintaining records solely to substantiate this liability.
During this window, the IRS will not assert civil penalties or additions to tax solely for failures covered by this announcement. The relief applies regardless of whether the applicable filing or reporting deadline falls after December 31, 2026. Furthermore, taxpayers will not be required to subsequently file, report, or reconstruct records for the relief period after December 31, 2026.
Obligations for other excise taxes remain
The News Release noted that this temporary relief does not affect any recordkeeping or reporting requirements that are independently applicable to another tax, or to a claim for an exemption, credit, or refund.
Additionally, persons who are required to file Form 720 for other liabilities must continue to file, report, and maintain records to substantiate those other liabilities. Under IRC § 6001 and § 6011, general recordkeeping and return-filing obligations remain in effect for all other transactions.
Addressing concerns over residual dye
The IRS is evaluating simplified procedures for administering these requirements with the Treasury Department. The agency also noted that it is aware of concerns regarding residual red dye remaining in fuel tanks after the temporary relief period ends on December 31, 2026. To mitigate these issues, the IRS is currently considering an appropriate grace period or other mitigation measures, with further guidance expected to follow.
This relief follows the IRS’ related dyed diesel fuel penalty relief announcement in IR 2026-122.
For more information about excise-tax-related penalties for improper use or sale of dyed diesel fuel, see Checkpoint’s Federal Tax Coordinator 2d ¶ V-2733.
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