b'Member NewsIRS DYED FUEL ENFORCEMENT INSPECTIONS Rules & Regulations Your Rights and Responsibilities Inspecting DispensersAny person who willfully alters the composition or strengthLabelsField agents will inspect dispensers forof dye in any dyed fuel.required IRS labels. Dyed diesel fuel pumps mustAny person who has knowledge that the dye composition ordisplay a label reading: DYED DIESEL FUEL,strength of dye in any dyed fuel has been altered and sells that NONTAXABLE USE ONLY, PENALTY FORfuel for a use that the person knows or has reason to know is TAXABLE USE. Likewise, dyed kerosene pumpsnot a nontaxable use.must display a label reading: DYED KEROSENE, NONTAX- Typically, the IRS levies a penalty of $10 per gallon of dyed fuel ABLE USE ONLY, PENALTY FOR TAXABLE USE. These la- sold from the dispenser over a specified time period. The $10 per bels must be legible, placed on both sides of the dispenser face orgallon fine is also levied on the volume of dyed fuel present in the just above the nozzle on side hanging equipment. Ripped, faded,storage tank connected to the dispenser at the time the violation is torn or missing labels will likely result in a violation and penalty. discovered. Finally, the retailer will be required to pay a back-up Blocked PumpsPumps that dispense nontaxed clear kerosenetax of 24.4 cpg on the total volume of fuel subject to the violation.must be configured in a way that prevents fueling into the tank ofViolations of the EPA sulfur content limits for both clear and dyed a motor vehicle. Field agents will inspect the pump for compli- fuel will result in a maximum $10,000 fine for every ance by determining if it is in a fixed location, equipped with asale made from the dispenser.short hose, blocked by pylons or unlocked and locked by an attendant after each sale to prevent vehicle fueling. In addition,Notice of Violationthe pump must display labels stating: UNDYED UNTAXEDNotice of violations resulting from a retail inspec-KEROSENE, NONTAXABLE USE ONLY. Finally, the fieldtion are issued by U.S. Mail. The notice will describe agent will inspect retailer records for a valid IRS 637 UPthe violation(s) found during the inspection and in-registration required for the sale of untaxed clear kero- clude a proposed penalty. The notice package also includes: sene from a blocked pump. Letter 3145 Dyed Fuel Penalty 30-day Letter; two copies of Form Violation Determination 12013, Report of Proposed PenaltyIRC 6720A; Form 12009, After examining records, inspecting the facility andRequest for an Informal Conference and Appeal Review; Notice sampling fuel from dispensers, IRS field agents will1215, What to do if You Disagree with the Penalty; and Publica-issue a notice of violation if any of the following occurred:tion 1, Your Rights as a Taxpayer.the dye concentration in any dispenser sample is altered; the pres- If a retailer disagrees with the penalty, an informal administra-ence of red dye is found in a sample from a dispenser not bearingtive conference can be requested within 30-days of receipt of the USED applicable nontaxable use only warning label; red dyeLetter 3145, Dyed Fuel Penalty 30-day Letter. If no agreement is is found in the fuel tank of a company-owned vehicle; the sulfurreached at the informal conference, a formal administrative appeal content of the fuel does not comply with EPA sulfur limits; pumpscan be requested by submitting Letter 3142, Dyed Fuel Penalty dispensing clear tax-free kerosene are not properly configured toCase to Appeals. More often than not, an agreement is hammered prevent fueling into the tank of a motor vehicle; the retailer doesout during the informal conference, making a formal administra-not have a valid IRS 637 UP registration letter allowing the saletive appeal unnecessary. of tax free clear kerosene for a blocked pump; the retailer refusesRefusal of Entrythe field agent entry and access to facility and records.Penalties Any owner who refuses to admit an agent of the If any violations are found, the field agent willTreasury Department relating to entry of premises calculate the penalty for each based on whetherrelated to the examination of federal motor fuelthe retailer knows or has reason to know they areexcise tax requirements, is subject to a fine of violating IRS requirements. The determination is$1,000 for each refusal. based on business records examined and physicalConclusion evidence found during the inspection. This standard of proof is soA violation of the dyed fuel regulations is con-low that a missing dispenser label alone could result in a violationsidered tax evasion by the IRS. The best way notice and penalty. Under federal law, a penalty of $1,000 or $10to avoid a hefty penalty of course is to stay in for each gallon of dyed fuel involved in the violation (whichevercompliance with IRS dyed fuel regulations. This is greater) is levied for the following offenses: means conducting routine inspection of diesel Any seller of dyed fuel who knows or has reason to know thatfuel and kerosene pumps for the appropriate IRS labels, taking the necessary steps to ensure dyed and clear fuel are the fuel will be used for other than a nontaxable use. not accidently mixed, fully segregating ULSD and LSD distillates Any person who holds for use or uses dyed fuel for a useand ensuring that the tax-free sale of clear kerosene is dispensedother than a nontaxable use and knows or has reason to knowfrom a compliant blocked pump, or alternatively, locked and the fuel is dyed. unlocked by an attendant after each sale.SWPMA News /Winter 202421'