Summary: 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.
