In response to an October 5, 2026 executive order, the IRS announced it will not impose penalties when dyed diesel fuel is sold for use or used on highways nationwide. The relief is retroactive to October 1, 2026 and remains in effect through December 31, 2026.
During the relief period, taxpayers don't need to maintain the records normally required to substantiate eligibility. The IRS also signaled forthcoming guidance on postponing payment of related excise taxes and on how the relief applies to Form 720, the Quarterly Federal Excise Tax Return.
Important caveat: the federal relief looks like a deferral rather than a full tax holiday, and state treatment varies — many states granted similar relief but not all, and scopes differ. Businesses operating across state lines should verify each state's position before assuming coverage.
When the relief expires January 1, 2027, normal rules snap back — including potential penalties if dye residue remains in vehicle fuel systems, so plan fuel-system flushing ahead of time.