This post is current as of October 17, 2026, and it is not tax or legal advice. Guidance is still arriving, so check with your state revenue department and your tax adviser before you change how you sell.
What does the dyed diesel executive order do?
The order, “Emergency Tax Relief on Diesel Fuel,” was signed October 5, 2026 and covers October 5 through December 31, 2026. It tells Treasury to determine whether it can defer federal fuel tax collection, and the IRS to announce it will not impose federal dyed-fuel penalties. The dyed-fuel rules and state law stay in place. Three sections matter to a distributor:
| Section | What it directs | What it leaves open |
|---|---|---|
| 2(a)-(b) | Treasury to decide within 5 days whether it can defer payment of the taxes imposed by 26 U.S.C. 4041(a)(1)(A) or 4041(b)(1)(B) for that window, “to the extent authorized by law,” without penalties or interest | Who qualifies, and the date the deferred tax is due (Sec. 3 says guidance will set it) |
| 2(c) | The IRS to announce, within 5 days, that it “will not impose a penalty under 26 U.S.C. 6715” (subsections (a)(1) or (a)(2)) when dyed diesel is sold for use or used on the highway in the window, and to address semimonthly deposit penalties | Answered by the IRS on October 14 (below) |
| 4 | Treasury to “explore avenues, including legislation, to eliminate the obligation to pay the amounts deferred” | Whether the tax is ever forgiven. For now it is only deferred |
Section 5 has Treasury assess IRS resources for fuel tank inspections and announce that determination; the IRS has since said no federal inspections of on-road dyed fuel usage will occur during the relief period. Section 8 encourages States to adopt matching policies. The order does not mention the EPA.
Argus reports that the order defers the federal 24.4 cents per gallon tax until year end.
Has the IRS announced the relief yet?
Yes. On October 14, 2026, the IRS announced in IR-2026-122 that “it will not impose a penalty when dyed diesel fuel is sold for use or used on highways nationwide.” The release says:
- Window. The relief is retroactive to October 1, 2026 and runs until December 31, 2026, so it starts four days before the order’s October 5 window.
- Who. “Relief is available to any person that sells dyed diesel fuel or uses dyed diesel fuel for highway use.”
- Penalties covered. Those related to the excise tax on dyed diesel used on highways, including penalties for failure to make semimonthly deposits of tax or to maintain adequate records.
- Enforcement. All IRS Fuel Compliance Officers are reassigned, and no federal inspections of on-road dyed fuel usage will occur.
- Records. “Sellers and distributors are under no obligation to investigate or document the ultimate end-use of dyed fuel sold during the relief period.”
- Still to come. Guidance on the postponement of payment under 26 U.S.C. 7508A, and on how the relief applies to Form 720 and other forms.
- Federal only. The relief “has no effect on state fuel taxes and penalties.” The IRS says many, but not all, states have provided similar relief.
If you believe you qualify but receive a penalty notice, the IRS says to follow the instructions in the notice or contact the IRS.
Who owes the deferred tax: the buyer or the seller?
It depends on the sale, so check which rule applies to each one. The IRS release names the retail seller first: “Generally, the person liable for the tax is the person who sells dyed diesel fuel at retail or, if the dyed diesel fuel is not purchased at retail, the operator of the motor vehicle (e.g., dyed diesel fuel held in a storage tank on a farm).”
On back-up tax, imposed when fuel is delivered into a highway vehicle’s tank, IRS Publication 510 says “Generally, the operator of the vehicle into which the fuel is delivered is liable for the tax.” It adds that the seller “is jointly and severally liable for the tax” when the seller knows or has reason to know the fuel is headed for a taxable use.
The same publication sets the dyed fuel misuse penalty at “the greater of $1,000 or $10 per gallon of the dyed diesel fuel or dyed kerosene involved.” Sec. 2(c) of the order covers that Section 6715 penalty, and the IRS relief waives penalties on highway dyed diesel from October 1 through December 31. The 24.4-cent tax on the fuel is a separate obligation. The IRS says it “will explore avenues to eliminate the obligation to pay any amounts deferred.”
The Energy Marketers of America (EMA) alert of October 6, before the IRS release, says marketers “could be among the taxpayers liable for 24.4 cents per gallon when the deferral ends.”
On a hypothetical 8,000-gallon delivery:
| Line | Value |
|---|---|
| Dyed diesel delivered for on-road use | 8,000 gallons |
| Federal rate cited by Argus | $0.244 per gallon |
| Deferred tax on the delivery | 8,000 × $0.244 = $1,952 |
| Seller’s exposure if it sold the fuel at retail | Up to the full $1,952, when the tax falls due |
Can red dyed diesel go on the road under state rules?
Only where your state has acted, and the rules vary. EMA says dyed-fuel prohibitions “also continue to apply unless a state acts.” Two examples, both from state revenue departments:
| State | What it did | What it did not do |
|---|---|---|
| Georgia | Waives state penalties for selling or delivering dyed fuel and for on-road consumption, in all 159 counties, effective October 6, 2026 through 11:59 p.m. November 5, 2026 | Waive the tax; penalties only |
| North Carolina | Will not impose a penalty, October 1 through December 31, 2026, for dyed diesel sold or used from bulk storage for highway use for farming or agricultural purposes, within NC only | Waive NC excise tax: the operator or seller pays 41 cents per gallon, and vendors and bulk end-users file Form GAS-1259 |
North Carolina also advises users to flush their fuel supply tanks so leftover dye does not draw a penalty after the relief period has ended. For any other state, check that state’s revenue department.
What about EPA and the 15 ppm sulfur limit?
EMA treats fuel quality as a separate question from tax. Its alert says dyed fuel used on the road “must still meet the 15 ppm ULSD standard,” and that EPA rules generally bar visible red dye in highway diesel “unless EPA grants a waiver.” Its alert also notes that high-sulfur heating oil and locomotive or marine fuel cannot be used in highway vehicles.
What should a distributor do now?
EMA’s October 6 advice was to “wait for the applicable federal and state guidance before changing their dyed-diesel sales.” The federal penalty relief is now out; the payment and Form 720 guidance is not, and not every state has acted. None of these steps changes what you sell:
- Check what your state requires on paper. The IRS says sellers and distributors have no federal obligation to investigate or document end use during the relief period. State rules are separate: North Carolina has vendors and bulk end-users file Form GAS-1259. EMA’s October 6 alert, written before the IRS release, said marketers “should consider documenting any such sales and customer use.”
- Keep dyed and clear separate on paper. The delivery ticket and the invoice should each name the product and its dye status, and the bill of lading should agree with them. How to read a fuel delivery ticket shows the fields.
- Watch your invoices. If a tax line changes between order and invoice, why your fuel invoice changed after delivery explains the usual causes.
- Plan cash for the deferred 24.4 cents. The IRS says payment guidance is still to come, so the due date is not set yet.
- Plan for dye residue. Argus notes industry uncertainty over how long dye traces stay detectable in tanks after the window ends.
- Tell customers what a quote includes. If you quote from the rack price, say whether the deferred tax is in it. Wholesale fuel pricing for suppliers covers the pricing basics.
Argus also reports that dyed diesel usually moves through wholesale channels serving agriculture, construction and heating, and that letting more buyers draw on those off-road stocks could tighten supply for farmers. Ask your agricultural customers early what they will need.
Does the Russian diesel deal change supply?
Probably not by much. By our arithmetic, the first 300,000 tons is less than one day of US distillate demand. OFAC General License 135, dated October 9, 2026, authorizes transactions “related to the sale, delivery, offloading, or importation, including importation into the United States, of diesel fuel of Russian Federation origin” through 12:01 a.m. EDT April 7, 2027. Paragraph (b) excludes debits to US accounts of Russia’s Central Bank, National Wealth Fund and Ministry of Finance.
Fortune reports that the president announced “more than 300,000 tons” immediately and 500,000 more in November, with more later. Fortune adds that Russia banned diesel exports in July after Ukrainian drone strikes on refineries. Clayton Seigle of CSIS said “I don’t think it’ll be enough to materially lower prices in the United States or Europe.”
Fortune does not say which tons, so we assume metric: 300,000 × 7.23 barrels per ton (the UN yearbook factor for gas oil/diesel oil) is about 2.17 million barrels. EIA put US distillate fuel oil product supplied at 3,650 thousand barrels per day for the week of October 2, 2026. That makes the first 300,000 tons about 0.59 days of demand (2.17 ÷ 3.65). The distillate figure also counts heating oil.
EIA put the US average on-highway diesel retail price at $6.199 per gallon for the week of October 5, 2026, up $2.488 from a year ago. The dyed-diesel order adds no supply: Argus notes the measure “adds no new diesel production, imports or inventories.”
What should distributors watch next?
- IRS guidance on postponing payment under 26 U.S.C. 7508A, and on how the relief applies to Form 720.
- The date postponed taxes must be paid.
- Whether Treasury or Congress moves to eliminate the deferred amount.
- Your state’s action, and its end date.
- December 31, 2026, when the order’s window and the IRS relief both end.
How Energy Connect handles it
In the Energy Connect carrier portal you record pickup and delivery on the load and attach the bill of lading and other delivery documents to it. Tax treatment stays with you and your tax adviser.