IRS Waives Dyed-Diesel Penalties in Wake of Katrina

n response to shortages of clear diesel fuel caused by Hurricane Katrina, the Internal Revenue Service said Friday it will not impose a tax penalty when dyed diesel fuel is sold for use or is used on the highway.

The ruling applies relief retroactively to Aug. 25 in Florida, Aug. 30 in Alabama, Louisiana and Mississippi, and Aug. 31 in the rest of country. It will remain in effect through Sept. 15, the IRS said.

This relief is available to any person that sells or uses dyed fuel for highway use. In the case of an 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.

rdinarily, 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.

The IRS also will not impose the recently enacted tax penalty on a failure to meet the requirements of Environmental Protection Agency on-highway diesel sulfur content regulations, which EPA has waived. (Click here for previous coverage.)

Those affected by Katrina who need help with tax matters can call the IRS toll-free at 1-866-562-5227.