Since IFCA’s last update on the temporary on-road use of dyed diesel, the IRS has announced federal penalty and reporting relief, and the Illinois Department of Revenue (IDOR) has issued additional bulletins for IFTA filers and fuel distributors. Here is what’s new:

 

Federal Update
On October 14, the IRS announced it will not impose federal penalties when dyed diesel is sold for use or used on highways nationwide. This applies from October 1 through December 31, 2026, and is not limited to agriculture. The IRS has said it will issue separate guidance on deferring payment of the federal excise tax. That guidance has not yet been released.

 

On October 21, the IRS announced that, for the same period, taxpayers are not required to report the affected federal dyed-diesel excise tax on Form 720 or keep records solely for that tax. The IRS also confirmed these records will not need to be reconstructed after December 31. Other federal reporting and recordkeeping obligations remain in place.

 

On October 23, the IRS released Frequently Asked Questions clarifying the requirements for fuel sellers and users. The FAQs note that the federal relief “does not address any state-imposed fuel-taxes or dyed-fuel requirements.” The IRS is also considering a grace period or other measures for residual red dye in fuel tanks after December 31, but has not yet announced one.

 

Although federal penalties and reporting requirements have been relaxed, the underlying federal excise tax has not been formally forgiven.

 

Illinois relief runs from October 6 through December 31, 2026. It applies only to farming and agricultural transportation, not to every highway use of dyed diesel. IDOR has issued two new bulletins:

IDOR’s original bulletin (FY 2027-07) still governs eligibility and recordkeeping for users. It requires documentation of qualifying agricultural transportation and dyed-diesel use to be kept for four years, and it describes records to keep for residual dye in vehicle tanks after December 31. The federal recordkeeping relief does not change these Illinois requirements.

 

What’s Ahead
The temporary federal and state relief is scheduled to end December 31, 2026, and IDOR has stated that normal enforcement resumes January 1, 2027. Questions remain about the deferred federal excise tax and any federal grace period for residual dye. Members should review the applicable guidance and carefully weigh potential implications before making any changes to normal fueling practices.

 

IFCA will continue to monitor developments and share additional information as it becomes available.