IRS offers guidance on recovering dyed fuel excise taxes

The Internal Revenue Service and the Treasury Department posted temporary regulations and a notice of proposed rulemaking Thursday outlining a new way to recover federal excise taxes paid on dyed fuel under the One Big Beautiful Bill Act.

The OBBBA, which President Trump signed into law last July, provided a number of tax breaks for oil and gas companies, while removing many of the tax credits for renewable energy sources such as solar and wind power, as well as residential energy efficiency and electric vehicles. The rules for claiming dyed fuel tax refunds come as the price of diesel, oil and gasoline hits new highs amid the ongoing war with Iran.

The temporary regulations issued Thursday include the procedures that a taxpayer can use 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 rules, however, limit the claimants to taxpayers who paid the IRS the original tax on the dyed fuel to which the claim relates.

The temporary regulations offer guidance on determining eligibility, along with the rules for filing a claim for a dyed fuel refund. 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, as long as 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 today'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.

The temporary regulations take effect immediately and will expire no later than three years from today's effective date and be replaced with permanent regulations. The Treasury and IRS also acknowledged that unless there's a statutory change passed by Congress, they currently lack the authority to pay the claims to anyone other than the person who paid the prior fuel excise tax to the IRS. In the meantime, they are asking for comments from the public on the notice of proposed rulemaking and requests for a public hearing on the proposed regulations.