The Treasury Department and the IRS released temporary regulations and a notice of proposed rulemaking on April 30 highlighting new requirements for recovering federal excise tax paid on dyed fuel under the One Big Beautiful Bill Act.
The temporary regulations provide guidance to determine eligibility and rules for filing a claim for a dyed fuel refund under Section 6435 of the tax code. They outline the procedures a taxpayer can use to recover federal excise taxes paid on clear diesel fuel or kerosene if that person later removed the fuel from a terminal as dyed fuel for nontaxable use. The temporary regulations also limit the claimants to taxpayers that paid to the IRS the original tax on the dyed fuel to which the claim relates.
In a blog post, top 10 U.S. accounting firm Forvis Mazars explains:
The original excise tax is imposed under §4081(a)(1)(A) when, among other situations, the taxpayer removes taxable fuel from any refinery or terminal. However, it’s possible that the same fuel that was both removed and taxed is later transferred and entered again into a terminal. Without §4081(e) and §48.4081-7, the second instance of removing this fuel would also result in an imposition of excise tax. As the preamble to the temporary regulations explains, “In other words, the §4081 tax may be imposed with respect to fuel more than once.” However, the refund mechanism under §6435 keeps this “double tax” from occurring, providing a refund without interest.
Considering the §6435 payment is considered a refund of an overpayment, the taxpayer must be the same entity that paid the original tax on the eligible dyed fuel. This tax may include both the general 24.3 cents per gallon tax as well as the 0.1 cent per gallon Leaking Underground Storage Tank Trust Fund financing tax (LUST tax). Specifically, the temporary regulations limit refunds to those who meet the following:
- “Section 4081 tax was imposed with respect to diesel fuel or kerosene,
- The taxpayer was liable for and paid such tax to the IRS and the tax has not been credited or refunded,
- The taxpayer removes from an approved terminal the diesel fuel or kerosene, which has been dyed as provided in §4082(a), and
- The taxpayer meets the reporting requirements of paragraph (e) of this section.”
These reporting requirements are outlined in detail in the temporary regulations. A model §6435 taxpayer’s report is also included. The detail included in a §6435 claim, according to the temporary regulations, include “volume and type of fuel removed, date of removal of fuel, amount of §4081 tax previously paid with respect to such fuel, [and] the §6435 taxpayer’s report that relates to such fuel.”
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 requirements 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 claimant must be the taxpayer that paid the prior fuel excise tax imposed on such fuel.
- The claimant meets the reporting requirements as described in last month’s guidance.
- The claimant uses updated Form 8849, Claim for Refund of Excise Taxes, and Schedule 5 (Form 8849), Section 4081(e) and 6435 Claims, including all information and documentation required by the forms and form instructions.
- The claimant follows all other procedures listed in the guidance.
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IRS Says Guidance Forthcoming on Dyed Fuel Excise Tax Refunds
“Treasury and IRS recognize the importance of providing clarity to taxpayers through guidance that can be relied on to file claims and structure business arrangements as soon as possible,” the IRS said in a media release on April 30. “To enable this, the temporary regulations are effective immediately. They will expire no later than three years from today’s effective date and will be replaced with permanent regulations. Treasury and IRS also note that absent a statutory change, they currently lack the authority to pay the claims to anyone other than the person that paid the prior fuel excise tax to the IRS. “
Comments on the proposed regulations, and requests for a public hearing, are due by June 30, 2026.
Photo credit: Westy72/iStock
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