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Part IV – Items of General Interest

The Service will not assert the penalty under § 6715 of the Internal Revenue
Code for diesel fuel that has been delivered by wholesale dealers to retail
dealers for resale to highway users or has been sold by wholesale dealers
directly to end users for highway use for the period September 2, 2004, through
September 7, 2004.

Announcement 2004-70

The Internal Revenue Service will not assert the penalty under section 6715 of
the Internal Revenue Code with respect to dyed diesel fuel that, due to shortages
of clear diesel fuel in the State of Florida caused by Hurricanes Charley and
Frances, has been delivered by wholesale dealers to retail dealers for resale to
highway users or has been sold by wholesale dealers directly to end users for
highway use. This relief from the section 6715 penalty will apply only to dyed
diesel fuel that wholesale dealers deliver or sell in the State of Florida and only to
fuel delivered or sold by wholesale dealers during the period September 2, 2004,
through September 7, 2004. In the case of wholesale dealers, penalty relief will
be available only if the wholesale dealer reports and pays the tax on the dyed
diesel fuel that is delivered or sold for highway use. The return and
payment will be due on October 31, 2004, and the IRS will not assert penalties
for failure to make semimonthly deposits of the tax. Wholesale dealers should
call 1-866-699-4096 (a toll free number) for instructions on the proper method for
reporting and paying this tax.
In general, diesel fuel may be removed tax free from a terminal if it is dyed
in the manner specified in the regulations under section 4082 of the Internal
Revenue Code. Section 4081(b) of the Internal Revenue Code imposes a tax on
blended diesel fuel created by mixing dyed diesel fuel with clear diesel fuel that
has been previously taxed. Under regulations, the seller of the dyed fuel in the
mixture is liable for this tax if the dyed fuel is sold as fuel that has previously
been taxed. A sale of dyed diesel fuel by a wholesaler to a retailer will be treated
as meeting this condition if the wholesaler delivers the dyed fuel into the retailer’s
storage tank for clear diesel fuel and the fuel qualifies for relief from the section
6715 penalty. Section 4041(a) of the Internal Revenue Code imposes a tax on
sales of dyed diesel fuel that has not been previously taxed to persons that will
use the fuel in a taxable highway use. Section 6715 of the Internal Revenue
Code imposes a penalty if dyed diesel fuel is sold for highway use or is knowingly
used on the highway.
Recent and imminent hurricanes in Florida have resulted in critical
shortages of clear, low-sulfur diesel fuel in that State. The Internal Revenue
Service and the Environmental Protection Agency are concerned that these
shortages could impair the ability of emergency vehicles and utility repair
vehicles to respond to existing damage
from Hurricane Charley and expected damage from Hurricane Frances.
Although limited quantities of dyed, high-sulfur diesel fuel are also available in
Florida, Clean Air Act restrictions and the section 6715 penalty restrict this fuel to
nontaxable off-highway uses. The relief announced today by the Internal
Revenue Service and the Environmental Protection Agency’s exercise of its
enforcement discretion under the Clear Air Act restrictions will make all diesel
fuel in the State of Florida available for highway use.
The principal author of this announcement is Barbara Franklin of the
Office of Associate Chief Counsel (Passthroughs & Special Industries). For
further information regarding this announcement contact Ms. Franklin at (202)
622-3130 (not a toll-free call).