Key Takeaways
- In certain situations, refunds are available for taxpayers who previously paid a Section 4081 tax on eligible diesel fuel or kerosene (assuming no prior credit or refund).
- Temporary regulations are now available, defining an eligible taxpayer for this refund to have previously paid the tax and has now removed dyed diesel fuel or kerosene from an approved terminal a second time.
- Examples and an outline of reporting requirements are also provided in the temporary regulations.
Clarifications Within the Temporary Regulations
Temporary regulations §48.6435-1T (the temporary regulations) are now available, providing clarity as to who is eligible for and how to claim refunds related to eligible dyed fuel under §6435. 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 IRS has issued a news release on this topic that provides helpful links to the requisite Form 8849, Claim for Refund of Excise Taxes, and Schedule 5 (Form 8849). 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.”
Accordingly, taxpayers will need to file the following to receive a refund:
- Initially, on the fuel’s initial removal, file Form 720 to report and pay §4081 tax.
- Include the first taxpayer’s report with Form 720.
- After the fuel’s second removal, file Form 8849.
- Include Schedule 5 (Form 8849).
- Include §6435 taxpayer’s report, using the model and guidance in the temporary regulations.
While this guidance is effective on May 1, 2026, according to the temporary regulations they apply for “removals of eligible dyed fuel occurring on or after December 31, 2025.”
How We Can Help
Considering Announcement 2026-1 requested that claims not be filed until further guidance was issued, taxpayers can now proceed with the refund process. Our professionals at Forvis Mazars can help you gauge eligibility and support your compliance efforts.