September 10, 2010
IRS fuel agents may soon be on your doorstep
Farm Bureau recently learned that two IRS field agents have now been stationed in Washington state in order to enforce compliance with the IRS interpretation of federal laws governing the use of dyed diesel.
So far, these inspectors have been active in Island, Skagit, and Whatcom counties. We know of at least two instances where agents have issued citations to area farmers. In each of those cases, an IRS inspector noticed a farm-exempt or farm-use vehicle on a public roadway, followed that vehicle back onto private property, and proceeded to dip the tanks for any trace of dyed diesel.
The current IRS interpretation of federal law is that dyed diesel cannot be used in any vehicle used on public roadways. Instead, producers must use clear diesel in that equipment, document their diesel purchases, keep a log of their non-taxable miles/gallons, and submit that paperwork for a tax credit/refund.
Traditionally, farmers have likely used dyed diesel in farm machinery and vehicles if that equipment was used in the production of ag products, even if it meant incidental use on public roadways.
The two IRS fines issued to date are to farmers who relied on this “traditional” interpretation. So it is critical for all producers who operate such equipment using dyed diesel on public roads to note that the IRS currently rejects this interpretation. To be in compliance right now, farmers should not be using dyed diesel in such vehicles.
Farm Bureau supports the traditional interpretation of dyed diesel regulations and is fighting to retain it. We believe that dyed diesel should be allowed in any farm equipment that moves from farm to field, field to field, or field to warehouse. Clear, on-road, taxable diesel should be used in the commercial transport of crops from farm to market.
Washington Farm Bureau, along with a diverse coalition of ag groups, has sent a letter to the IRS in defense of our interpretation. We have asked for all enforcement actions to cease until the IRS provides clear explanations of fuel tax law to affected industry groups and apprises all stakeholders of changes in IRS goals, policy interpretation, and intended enforcement. We are also making the same case to our congressional delegation.
If you are visited by or cited by the IRS, please contact Washington Farm Bureau immediately by emailing or calling Scott Dilley at firstname.lastname@example.org or (360) 628-7209.
Washington Farm Bureau is a 38,000-member family advocacy organization representing family farmers and ranchers across the state. For more information about Washington Farm Bureau, go to www.wsfb.com or call 1.800.331.3276.