The IRS and Treasure Department have jointly announced an
extension of relief for the dyed diesel fuel tax penalty in
light of Hurricane Katrina.
Shortages Spur Extension of Relief
Diesel fuel comes in two general forms, clear and dyed. Dyed
diesel is not environment friendly. Under laws passed by
Congress, the IRS effectively bans the sale of dyed diesel fuel
for use on highways. Put another way, the trucking industry must
use clear diesel for transports.
In the wake of serious fuel shortage issues caused by Hurricane
Katrina, the IRS immediately waived the tax penalties that
effectively acted as a ban of the use of dyed diesel fuel. The
order, however, was only effective until late September, but it
was anticipated the Commissioner of the IRS would extend the tax
relief.
In fact, the extension has now been issued to October 25, 2005.
With the damage caused by Hurricane Rita, I anticipate yet
another extension will occur as the 25th approaches.
While the penalties associated with dyed diesel are waived, the
IRS has chosen to keep a basic diesel fuel tax in place. All
sales of dyed diesel fuel are subject to a 24.4 cent tax per
gallon. Either the retailer or purchaser can pay. The IRS,
however, has indicated that it will waive any penalties and
interest assessments associated with failure to make bi-weekly
deposits of the tax. In addition, users of dyed diesel fuel need
not concern themselves with any EPA restrictions related to its
use during this temporary waiver.
In Closing
Typically criticized for reacting slowly, the IRS should be
commended for taking quick steps to free up fuel from a tax
perspective. Fortunately, the Agency is staying on top of the
difficulties caused by Hurricane Katrina and reacting
accordingly.
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