The Treasury Department and the IRS on Monday announced forthcoming guidance on a new method for recovering federal excise tax paid on dyed fuel established under the One Big Beautiful Bill Act.
Announcement 2026-01 provides general information to interested taxpayers and potential claimants on claiming a payment under a new OBBBA provision related to dyed fuel.
The new law allows a taxpayer to recover federal excise taxes paid on clear diesel fuel or kerosene if that taxpayer later removed the fuel from a terminal as dyed fuel for nontaxable use.
The announcement notes that absent a statutory change, the Treasury Department and the IRS lack the authority to pay the claims to anyone other than the person who paid the original tax on the dyed fuel to which the claim relates.
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Announcement 2026-01 also addresses forthcoming guidance, which will inform eligible taxpayers of the process for submitting a dyed fuel refund claim.
Taxpayers who paid tax on diesel fuel or kerosene and later removed the fuel from a terminal as eligible dyed fuel on or after Dec. 31, 2025, can submit a claim for refund, provided the following conditions are met:
- The dyed fuel was previously taxed, and the tax was not credited or refunded.
- The fuel is indelibly dyed by mechanical injection and removed from an approved terminal for a nontaxable use on or after Dec. 31, 2025.
The Treasury Department and the IRS anticipate issuing this guidance in early 2026 and request that taxpayers hold any claims until this guidance is issued. The IRS said it won’t process any claims until that time.
According to the IRS, when a pipeline shuts down or closes, fuel may be removed from one terminal, trucked to another terminal and re-entered into the bulk transfer/terminal system. Federal law imposes an excise tax on the first removal even if it’s subsequently removed as dyed fuel indicating it may only be used for nontaxable purposes.
By establishing a statutory refund mechanism to recover the first tax imposed on the dyed fuel, the OBBBA addresses this issue for affected stakeholders and closes a gap in prior law, the IRS said.
Photo credit: Skyhobo
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