This Alert has been updated to reflect an IRS extension of the waiver for Florida to October 6, 2017.

In IR-2017-142 and IR-2017-149, the IRS announced it is waiving dyed diesel fuel penalties for the entire states of Texas and Florida. The waiver responds to fuel shortages caused by Hurricanes Harvey and Irma. The IRS will not impose the dyed fuel penalty when dyed diesel fuel is sold for use or used on the highway in Texas between August 25, 2017 and September 15, 2017 or in Florida between September 6, 2017 and October 6, 2017 (as extended from September 22, 2017 by IR-2017-159) (the waiver periods).

Diesel fuel is ordinarily not taxed if it is sold for uses exempt from excise tax and is dyed. Exempt uses include sales: (1) for home heating; (2) to farmers for farming purposes; and (3) to local governments for buses. Generally, commercial truckers may not use dyed diesel fuel on the highway. Section 6715 of the Internal Revenue Code imposes a penalty of $10 per gallon, up to a maximum of $1,000, on the sale for use (or use) of dyed diesel fuel for a taxable highway use (with multiples of that penalty for repeat offenders).

In response to shortages of undyed diesel fuel in the states of Texas and Florida resulting from the hurricanes, the IRS is waiving the Section 6715 penalty so that dyed diesel fuel will be available for commercial use on the highway. The penalty relief is available to any person that sells or uses dyed fuel for highway use, as long as the 24.4-cents-per-gallon excise tax normally applied to diesel fuel for on-road use is paid. Additionally, the IRS will not impose penalties for failure to make semimonthly deposits of the excise tax. Semimonthly deposits for the waiver periods would ordinarily be due on September 14 (August taxes) and September 29 (September taxes).

Also, the IRS will not impose the Section 6720A tax penalty on the sale for highway use of fuel that fails to meet the requirements of EPA highway diesel fuel sulfur content regulations as the EPA has waived those requirements. EPA waivers permit the highway use of 15-parts-per-million sulfur non-road diesel fuel for the waiver periods in Texas and Florida.

In IR-2017-157, the IRS said it would also waive the Section 6720A penalty for utility vehicles in Florida to use diesel fuel containing up to 20 parts per million sulfur between September 13, 2017, and September 22, 2017 (or until utility stocks of such fuel are exhausted). The IRS made this determination after a separate EPA announcement allowing such use. The prohibition against highway use of fuel with sulfur content higher than 15 parts per million continues to apply in all other cases.

On August 30, 2017, the IRS initially granted penalty relief to certain Texas counties (IR-2017-139).

Implications

Although the waiver has expired in Texas and will shortly expire in Florida, taxpayers who have sold or used dyed diesel fuel for a taxable highway use are reminded that the waiver applies only if they pay the 24.4-cents-per-gallon tax on the fuel. Although they are not required to make semimonthly deposits of the tax, the tax should be paid with Form 720 for the quarter ending September 30, 2017. The Form 720 for that quarter is due October 31, 2017.

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