IRS will not impose penalty on dyed diesel use

The Internal Revenue Service announced today that, in response to shortages of diesel fuel created by Hurricane Katrina, it will not impose a tax penalty when dyed diesel fuel is sold for use or used on the highway.

The relief took effect in Florida, Aug. 25; in Alabama, Louisiana and Mississippi, Aug. 30; and the remainder of the United States on Aug. 31. It will remain in effect until Sept. 15, according to the IRS.

“This penalty relief is available to any person that sells or uses dyed fuel for highway use,” the IRS said in a press release. “In the case of the operator of the vehicle in which the dyed fuel is used, the relief is available only if the operator or the person selling the fuel pays the tax of 24.4 cents per gallon.

“The IRS will not impose penalties for failure to make semi-monthly deposits of this tax. IRS Publication 510, Excise Taxes for 2005, has information on the proper method for reporting and paying the tax.”

Ordinarily, dyed diesel fuel is not taxed because it is sold for uses exempt from excise tax, such as to farmers for farming purposes and to local governments for buses.

Since Katrina made landfall, creating massive damage in the New Orleans area and the Mississippi Gulf Coast on Aug. 26, gasoline and diesel fuel prices have risen sharply. There have also been reports new restrictions on diesel fuel use were coming.

“We are grateful that the Internal Revenue Service has waved the penalty for using dyed diesel for highway use,” said Sen. Thad Cochran, R-Miss. “Our farmers and the transportation industry need all the help they can get during these times of a national disaster.” The IRS also said it will not impose the recently enacted tax penalty on a failure to meet the requirements of EPA highway diesel fuel sulfur content regulations if EPA has waived those requirements.

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