TL;DR: President Trump signed Executive Order 14435 on October 5, 2026, directing the IRS to suspend federal excise tax penalties on dyed diesel fuel used on highways from October 1 through December 31, 2026. This rare top-down penalty suspension is a vivid reminder that IRS penalties are not carved in stone. Individual taxpayers and small business owners have their own established pathways, including First-Time Abatement, the new Automatic Exemption from Penalty program, and reasonable cause relief, to reduce or eliminate IRS penalties on income, payroll, and other tax debts.
By Fresh Start Initiative
Most people think an IRS penalty notice is final. The number is printed in bold, the letter looks official, and the clock is already ticking on interest. It feels immovable. But the federal government just reminded the entire country that IRS penalties can be suspended, deferred, or waived entirely when the circumstances call for it.
The diesel fuel executive order made headlines because it touched millions of truckers, farmers, and fuel distributors overnight. The broader lesson, though, belongs to every taxpayer sitting on a pile of back taxes and penalty notices. If the government can wipe out penalties for an entire industry with a stroke of a pen, the IRS’s own long-standing relief programs are worth understanding deeply.
This article breaks down exactly what happened with the diesel tax order, what it does and does not cover, and most importantly, what it tells you about the tax debt relief options already on the books for ordinary Americans.
What Executive Order 14435 Actually Did
President Donald Trump on October 5, 2026, issued Executive Order 14435, “Emergency Tax Relief on Diesel Fuel,” directing the U.S. Department of the Treasury Secretary to defer certain diesel fuel tax payments and provide penalty relief. The stated reason was straightforward: fuel costs were crushing two industries the administration considers essential to the American economy.
Dyed diesel fuel is normally exempt from excise taxes because it is designated for off-highway business use, such as farming. However, selling or using dyed diesel fuel to power vehicles on public highways ordinarily triggers excise taxes and penalties. The executive order temporarily changed that calculus.
The IRS announced that it will not impose a penalty when dyed diesel fuel is sold for use or used on highways nationwide, with the relief retroactive to October 1, 2026, and remaining in effect until December 31, 2026. The IRS implemented this through IR-2026-122, published on October 14, 2026.
Specifically, the executive order calls on the Treasury Secretary to direct the IRS to announce it will suspend penalties under IRC Section 6715(a)(1) and Section 6715(a)(2) for certain uses of dyed diesel fuel. That is a very specific statutory penalty being turned off at the highest level of government.
What the Order Does NOT Cover
Before anyone in the trucking or farming industry breathes a full sigh of relief, there are important limits to understand. The executive order does not eliminate the underlying excise tax obligation. It suspends penalties for a defined period only.
The federal penalty relief applies strictly to federal tax liabilities and compliance measures, and it has no effect on state fuel taxes or any state-level penalties that may apply to the highway use of dyed diesel fuel. Although many states have enacted corresponding excise tax relief, some have not.
During the relief period, ordinary procedures for collection and enforcement will be suspended, and all IRS Fuel Compliance Officers will be reassigned other responsibilities. No federal inspections of on-road dyed fuel usage will occur. This relief includes penalties for failure to make semimonthly deposits of tax or to maintain adequate records, and sellers and distributors are under no obligation to investigate or document the ultimate end-use of dyed fuel sold during the relief period.
For small businesses affected by this order, the Small Business Administration recommends reviewing IR-2026-122 for full details. The executive order itself was published in the Federal Register as EO 14435, 91 FR 64747.
The Bigger Picture: IRS Penalties Are Never Truly Final
Here is the lesson hiding inside the headlines. The president did not create a new law to suspend these penalties. He directed the Treasury Secretary to use existing legal authority. The IRS already had tools on the books to provide relief. The order simply activated them faster and at greater scale than normal.
The same principle applies to you. The IRS has a well-developed system of penalty relief programs for individual taxpayers and small business owners. These programs exist precisely because Congress and the IRS recognize that people sometimes fall behind for reasons beyond their control. You do not need an executive order to access them. You need to know they exist and how to ask.
Exploring your tax debt relief options is the first step most people skip, often because they assume the IRS will say no. In reality, the IRS grants penalty relief to millions of taxpayers every year through the programs described below.
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Check Your Eligibility →The Three Main IRS Penalty Relief Programs for Individual Taxpayers
If you have received a penalty notice for failing to file, failing to pay, or failing to make payroll deposits, at least one of these programs likely applies to your situation. They are not secret. They are part of the IRS’s own administrative guidelines. The challenge is knowing which one fits and how to request it properly.
- Automatic Exemption from Penalty (AEP): In July 2026, the IRS began to phase in the Automatic Exemption from Penalty (AEP) program, which automatically provides penalty relief to eligible taxpayers with a history of timely filing and payment compliance. Under AEP, eligible taxpayers will not need to call or write the IRS to request relief. Instead, the IRS will automatically identify eligible taxpayers and prevent certain penalties from being assessed.
- First-Time Penalty Abatement (FTA): First Time Penalty Abatement is an IRS administrative waiver that removes certain penalties, including failure to file, failure to pay, and failure to deposit, for a taxpayer with a clean compliance history for the prior three years. It applies to a single tax period and is granted regardless of the penalty amount. A manual request by phone, Form 843, or letter remains available for any qualifying case where automatic relief is not applied.
- Reasonable Cause Relief: You may qualify to have certain penalties removed or reduced if you acted with reasonable cause and in good faith. This path is available even if you do not have a clean three-year history. Events like a serious illness, a natural disaster, or reliance on bad professional advice can qualify. If you do not qualify for administrative relief or the IRS cannot approve your relief over the phone, you can request relief in writing with Form 843, Claim for Refund and Request for Abatement.
For eligible individual taxpayers, AEP may prevent the IRS from assessing failure-to-file penalties and failure-to-pay penalties. For eligible business taxpayers, AEP may also prevent failure-to-deposit penalties.
How to Request IRS Penalty Relief: A Step-by-Step Guide
Requesting penalty relief does not require a lawyer or an executive order. It requires knowing the right steps and following them in the right order. Here is how to approach it:
- Pull out your IRS notice. Write down the notice number, the tax year, the type of penalty, the amount assessed, and the response deadline. Every penalty notice includes a toll-free number at the top right corner.
- Check for automatic AEP relief first. When AEP applies, the IRS will send taxpayers a notice explaining that a penalty was not assessed because of their timely compliance history. Taxpayers who receive this notice generally do not need to contact the IRS or respond to the notice. If you filed and paid on time for the prior three years and no notice arrived, check your IRS online account transcript.
- Evaluate First-Time Abatement eligibility. A clean compliance history means no penalties for the prior three years preceding the penalty year. If you qualify, call the IRS at the number on your notice and ask for FTA. This is often resolved in a single phone call.
- Gather documentation for reasonable cause if FTA does not apply. Write a statement that explains what happened, how it prevented compliance, and why you acted with reasonable care. Supporting documents could include medical records, insurance claims, or professional correspondence.
- File Form 843 if a written request is needed. IRS Form 843 lets you request relief from certain federal penalties, interest, taxes, and fees. Complete one form per penalty per tax year and attach your dated supporting evidence.
- Send by certified mail and keep copies. Send the request by the notice deadline using certified mail, trackable courier, or the exact IRS method listed on the notice. Keep a complete copy of the request, proof of delivery, and every follow-up notice.
- Monitor your IRS account transcript. If an eligible penalty is assessed and you expect automatic abatement, monitor your IRS account and check your transcripts online to confirm that the automatic abatement was applied.
Free Eligibility Check
See if you qualify for tax debt relief
Take 60 seconds to find out which IRS programs you may qualify for. No obligation, no cost.
Check Your Eligibility →Beyond Penalty Relief: Your Broader Tax Debt Relief Options
Penalty abatement addresses the added charges on top of your tax debt. But if you also owe the underlying taxes and cannot pay them in full, you need to know what your broader options look like. The IRS offers several structured programs, and choosing the right one depends entirely on your financial picture.
You can see how IRS payment plans and debt resolution programs work in detail, but here is a side-by-side comparison of the three most common paths:
| Program | Best For | What You Pay | Key Condition | Typical Timeline |
|---|---|---|---|---|
| Installment Agreement (Payment Plan) | Taxpayers who can pay over time | Full balance plus accruing penalties and interest | Must stay current on future filings and payments | Up to 72 months |
| Offer in Compromise (OIC) | Taxpayers whose total debt exceeds what the IRS can realistically collect | A lump sum or short-term payments for less than the full balance | IRS must determine your Reasonable Collection Potential is below the balance owed | 6 to 12+ months for IRS review |
| Currently Not Collectible (CNC) | Taxpayers facing immediate hardship with no ability to pay | Nothing while status holds | Paying anything would create economic hardship; IRS reviews annually | Temporary; reviewed periodically |
| Partial Payment Installment Agreement (PPIA) | Taxpayers who can pay something monthly but not enough to pay in full before the collection statute expires | Monthly payments based on disposable income; remaining balance written off at statute expiration | Full financial disclosure required; reviewed every two years | Until the IRS collection window expires |
An Offer in Compromise lets you settle for less if the IRS agrees it is the most they can collect, while Currently Not Collectible status means the IRS temporarily pauses active collection because paying would create hardship. Offers in Compromise take six to twelve months or longer for the IRS to evaluate. If time is critical because you are facing liens, levies, or wage garnishment, an installment agreement provides faster relief.
The diesel tax executive order is a useful lens here. The government chose penalty suspension over full tax elimination because it matched the economic reality of the situation. The IRS applies the same logic to individual cases. The program it offers you will depend on what your financial reality actually looks like, not on what you wish it looked like.
Frequently Asked Questions
What is Executive Order 14435 and what does it do for diesel taxes?
Executive Order 14435, “Emergency Tax Relief on Diesel Fuel,” directs the Treasury Secretary to “use his authority to defer certain diesel fuel tax payment obligations and to provide penalty relief to the extent permitted by law.” On October 14, 2026, the IRS announced that it will not impose penalties when dyed diesel fuel is sold for use or used on highways in the U.S. The relief is retroactive to October 1, 2026, and will remain in effect through December 31, 2026.
Does the diesel tax executive order affect state fuel taxes?
This relief only applies for federal tax purposes. It has no effect on state fuel taxes and penalties that a state may impose on the use of dyed diesel fuel on the highway. Many, but not all, states have provided similar state excise tax-related relief. Check with your state revenue department for specific guidance.
What is the IRS Automatic Exemption from Penalty (AEP) program?
On July 8, 2026, the IRS announced a significant administrative change through the introduction of the AEP program. Beginning in summer 2026, the IRS will automatically provide administrative penalty relief to eligible taxpayers with a history of timely filing and payment, eliminating the need to request relief under the long-standing First Time Abate (FTA) policy. AEP will fully replace the First Time Abate (FTA) program for eligible original returns with due dates on or after January 1, 2027.
How do I request IRS penalty abatement if I do not qualify for AEP?
You can call the IRS at the telephone number found on your notice or letter, or send a written statement or Form 843, Claim for Refund and Request for Abatement, to the address specified in the Form 843 instructions. For reasonable cause claims, working with a tax professional improves your odds because the explanation on Line 8 of Form 843 is the determining factor.
Can the IRS really settle my tax debt for less than I owe?
An Offer in Compromise is an agreement that settles tax liabilities for less than the full amount owed. However, the IRS is explicit: if you can fully pay through an installment agreement or other means, you generally will not qualify. An experienced tax debt relief professional can evaluate your specific financial situation and determine which program, if any, applies to you.
What happens if my penalty abatement request is denied?
A denial is not the end of the road. You have the right to appeal the IRS decision through the IRS Independent Office of Appeals. You can also explore whether a different relief pathway, such as reasonable cause instead of FTA, or a debt resolution program, better fits your situation. Depending on the facts, you may qualify for FTA, AEP, reasonable cause relief, or another form of penalty relief. A qualified tax professional can help you evaluate all available paths.