Proposed Regulations (REG-119294-25) and Temporary Regulations (T.D. 10047), April 30, 2026

The enactment of the One, Big, Beautiful Bill Act (OBBBA) introduced Internal Revenue Code (IRC) Section 6435, providing a mechanism for recovering the Section 4081 excise tax paid on diesel fuel or kerosene that subsequently qualifies as exempt under Section 4082(a). Recently, the Department of the Treasury and the Internal Revenue Service (IRS) issued temporary regulations (T.D. 10047) and cross-referenced proposed regulations (REG-119294-25) addressing these payments. The IRS also issued a corresponding news release, IR-2026-59, to announce "a new method for recovering federal excise tax paid on dyed fuel established under the One, Big, Beautiful Bill".

IRS Rationale for Immediate Guidance

The Treasury and IRS bypassed standard notice-and-comment procedures to issue immediately effective temporary regulations, citing that failure to do so "would be impracticable and contrary to the public interest". The primary driver for this urgency was the legal complexity and administrative ambiguity surrounding the statutory drafting of Section 6435. Specifically, the IRS noted that "section 6435 does not include language deeming such a payment as a refund of an overpayment of tax and lacks a specific appropriation for section 6435 payments".

Because the only available appropriation for paying these claims is the general refund appropriation under 31 U.S.C. 1324(b)(1), which limits disbursements to an overpayment under IRC Section 6402, the IRS concluded it lacks "the authority to pay section 6435 claims to anyone other than the person that paid the section 4081 tax with respect to the eligible dyed fuel to which the claim relates". Providing immediate guidance was deemed "critical to provide taxpayers and the IRS with certainty as soon as possible regarding the rules governing eligibility for, and the procedures for claiming, a payment under section 6435". The IRS emphasized in IR-2026-59 that they "recognize the importance of providing clarity to taxpayers through guidance that can be relied on to file claims and structure business arrangements as soon as possible".

Key Provisions and Definitions

The temporary and proposed regulations—whose substantive texts are identical—add Section 48.6435-1T and proposed Section 48.6435-1 to the Manufacturers and Retailers Excise Tax Regulations. Treasury Regulation Section 48.6435-1T(b) defines "eligible dyed fuel" as "diesel fuel or kerosene with respect to which a tax under section 4081 of the Code (section 4081 tax) was previously paid (and not credited or refunded), and that is exempt from taxation under section 4082(a) of the Code". A "section 6435 refund" is strictly defined as a payment made to the person that actually paid the Section 4081 tax, representing "a refund of an overpayment (without interest) under section 6402 to the taxpayer".

Conditions for Allowance of Refund

Under Section 48.6435-1T(d), a claim is strictly conditioned upon four requirements. The taxpayer must demonstrate that the Section 4081 tax was imposed, that the taxpayer was liable for and actually paid the tax to the IRS (without prior credit or refund), that the taxpayer removed the dyed diesel fuel or kerosene from an approved terminal as provided in Section 4082(a), and that the taxpayer meets specific reporting requirements. The IRS news release echoes this limitation, emphasizing that "The claimant must be the taxpayer that paid the prior fuel excise tax imposed on such fuel".

Reporting and Claim Procedures

To streamline the process and avoid duplicate reporting, the IRS established a tailored reporting framework. Pursuant to Section 48.6435-1T(e), taxpayers must submit a "section 6435 taxpayer’s report" that includes a formal declaration. This model report uniquely "requires a taxpayer to declare that, except for the section 6435 claim to which the report relates, the taxpayer has not received, and will not claim, a credit with respect to, or a refund of, the tax". Furthermore, it expressly identifies and revokes any prior "first taxpayer report filed pursuant to § 48.4081-7(c) by the taxpayer with respect to the fuel that is the subject of the section 6435 taxpayer’s report".

For actual claim submission, Section 48.6435-1T(f)(1) mandates that taxpayers "must submit a section 6435 claim on Form 8849, Claim for Refund of Excise Taxes, that includes the section 6435 taxpayer’s report and a completed Schedule 5 (Form 8849), Section 4081(e) and 6435 Claims". A critical procedural trap for practitioners to note is that "A taxpayer cannot make a section 6435 claim on the same Form 8849 as any other claims besides another section 6435 claim". The IRS confirms in IR-2026-59 that claimants must use the "updated Form 8849... and Schedule 5... including all information and documentation required by the forms and form instructions". As to timing, Section 48.6435-1T(g) states that a claim may be filed anytime after removal and before the expiration of the IRC Section 6511 statute of limitations period for a refund of an overpayment of the original Section 4081 tax.

Effective Dates and Sunset Provisions

Both the temporary regulations and the identical proposed regulations apply retroactively "to removals of eligible dyed fuel occurring on or after December 31, 2025". The temporary regulations under Section 48.6435-1T took effect upon their publication in the Federal Register. However, practitioners should be aware of the built-in sunset provision; the temporary regulations "expire on the earlier of May 1, 2029, or the date of any statutory change that would appropriate funds for the payment of claims under section 6435 to persons other than the taxpayer that paid the section 4081 tax to which the claim relates". The IRS news release reaffirms that these temporary rules "will expire no later than 3 years from today’s effective date and will be replaced with permanent regulations".

Prepared with assistance from NotebookLM.