b'IRS DYED FUEL ENFORCEMENT INSPECTIONS Your Rights and Responsibilities labels must be legible, placed on both sides of the dispenserAny person who willfully alters the composition orface or just above the nozzle on side hanging equipment.strength of dye in any dyed fuel.Ripped, faded, torn or missing labels will likely result in aAny person who has knowledge that the dye compositionviolation and penalty. or strength of dye in any dyed fuel has been altered andBlocked PumpsPumps that dispense nontaxed clear sells that fuel for a use that the person knows or has reasonkerosene must be configured in a way that prevents fuelingto know is not a nontaxable use. into the tank of a motor vehicle. Field agents will inspect theTypically, the IRS levies a penalty of $10 per gallon of dyedpump for compliance by determining if it is in a fixed location,fuel sold from the dispenser over a specified time period. Theequipped with a short hose, blocked by pylons or unlocked$10 per gallon fine is also levied on the volume of dyed fueland locked by an attendant after each sale to prevent vehiclepresent in the storage tank connected to the dispenser at thefueling. In addition, the pump must display labels stating:time the violation is discovered. Finally, the retailer will beUNDYED UNTAXED KEROSENE, NONTAXABLE USErequired to pay a back up tax of 24.4 cpg on the total volumeONLY. Finally, the field agent will inspect retailer recordsof fuel subject to the violation.for a valid IRS 637 UP registration required for the sale of untaxed clear kerosene from a blocked pump. Violations of the EPA sulfur content limits for both clear and Violation Determination dyed fuel will result in a maximum $10,000 fine for everysale made from the dispenser.After examining records, inspecting the facility and sampling fuel from dispensers, IRS field agents will issue a notice of viola- Notice of Violationtion if any of the following occurred; the dye concentration inNotice of violations resulting from a retail inspection are issued any dispenser sample is altered; the presence of red dye is foundby U.S. Mail. The notice will describe the violation(s) found in a sample from a dispenser not bearing the USED applicableduring the inspection and include a proposed penalty. The notice nontaxable use only warning label; red dye is found in the fuelpackage also includes; Letter 3145 Dyed Fuel Penalty 30-day tank of a company owned vehicle; the sulfur content of the fuelLetter; two copies of Form 12013, Report of Proposed Penalty does not comply with EPA sulfur limits; pumps dispensing clear IRC 6720A; Form 12009, Request for an Informal Conference tax-free kerosene are not properly configured to prevent fuelingand Appeal Review; Notice 1215, What to do if You Disagree into the tank of a motor vehicle; the retailer does not have a validwith the Penalty; and Publication 1, Your Rights as a Taxpayer.IRS 637 UP registration letter allowing the sale of tax free clear kerosene for a blocked pump; the retailer refuses the field agentIf a retailer disagrees with the penalty, an informal administra-entry and access to facility and records. tive conference can be requested within 30 days of receipt of Letter 3145, Dyed Fuel Penalty 30-day Letter. If no agreement Penalties is reached at the informal conference, a formal administrative If any violations are found, the field agent will calculate the pen- appeal can be requested by submitting Letter 3142, Dyed Fuel alty for each based on whether the retailer knows or has reasonPenalty Case to Appeals. More often than not, an agreement is to know they are violating IRS requirements. The determinationhammered out during the informal conference, making a formal is based on business records examined and physical evidenceadministrative appeal unnecessary. found during the inspection. This standard of proof is so low thatConclusion a missing dispenser label alone could result in a violation notice and penalty. Under federal law, a penalty of $1,000 or $10 forA violation of the dyed fuel regulations is considered tax evasion each gallon of dyed fuel involved in the violation (whichever isby the IRS. The best way to avoid a hefty penalty of course is to greater) is levied for the following offenses: stay in compliance with IRS dyed fuel regulations. This meansAny seller of dyed fuel who knows or has reason to knowconducting routine inspection of diesel fuel and kerosene pumps for the appropriate IRS labels, taking the necessary steps to en-that the fuel will be used for other than a nontaxable use. sure dyed and clear fuel are not accidently mixed, fully segregat- Any person who holds for use or uses dyed fuel for a useing ULSD and LSD distillates and ensuring that the tax-free sale of clear kerosene is dispensed from a compliant blocked pump, or other than a nontaxable use and knows or has reason to knowalternatively, locked and unlocked by an attendant after each sale. the fuel is dyed.SWPMA News / Winter 202045'