Tax AdministrationDiesel Fuel Excise Tax Change Gao ID: GGD-96-53 January 16, 1996
The new diesel fuel excise tax appears to be having the desired effect. Preliminary data from the Internal Revenue Service (IRS) show that diesel excise tax collections rose about $1.2 billion, or 22.5 percent, in 1994 as compared with figures for 1993. This increase does not include additional revenues due to the Omnibus Reconciliation Act of 1993 increase of 4.3 cents per gallon in the tax rate. After adjusting for increased refund and credit amounts, and for a portion of the increase that may be due to economic growth, the Treasury Department estimates that increased compliance alone led to an increase of up to $700 million. IRS has responded to concerns that stakeholders raised about the dyeing requirements. Although the new diesel taxation approach appears to be raising significant additional revenue, those who wish to defraud the system continue to have significant incentives to do so. IRS has detected several scams involving refunds of gasoline or diesel fuel excise taxes. IRS does not know how extensive this fraud may be. Evasion problems may persist because the incentives to evade are so great.
GAO found that: (1) IRS determined that diesel excise tax collections increased about $1.2 billion from 1993 to 1994; (2) this increase did not include amounts collected as a result of the Omnibus Budget Reconciliation Act 1993 fuel tax rate increase; (3) increased tax compliance accounted for between $600 million and $700 million of the increase; (4) IRS has addressed the two major concerns regarding the Environmental Protection Agency's dyeing requirements, but has not addressed concerns about the concentration of dye required and the impact of the requirements on fuel availability at marinas; (5) IRS has not addressed concerns about tax collection on products added to diesel fuel after leaving the terminal; and (6) the new diesel fuel taxation approach remains vulnerable to fraudulent excise tax refund claims, but IRS has not determined the extent of such fraud.