Motor Fuel Tax Evasion Summary
- Substantial revenue losses caused by motor fuel tax evasion schemes were
discovered in the New York metropolitan area in the mid-1980s. Fuel tax evasion
schemes have since spread throughout the country. In 1994, the Federal Highway
Administration (FHWA) estimated that the combined Federal and State fuel tax
evasion losses approached $3 billion annually.
- Since 1986, the Internal Revenue Service (IRS) and FHWA have worked cooperatively
to reduce fuel tax evasion by supporting changes in tax collection procedures
and additional enforcement resources. Enforcement activities directly contribute
hundreds of millions of dollars to the Highway Trust Fund (HTF) and State
transportation funds, a yield estimated at $10 to $20 per dollar spent on these programs.
- Since FY 1990, FHWA has provided funding to supplement State and IRS fuel
tax enforcement resources under the auspices of the Joint Federal/State Motor
Fuel Tax Compliance Project, or Joint Project for short. The Joint Project
Steering Committee is co-chaired by FHWA and IRS and is composed of representatives
from the revenue agencies of nine lead States as well as representatives from
the DOT Office of Inspector General, the Department of Justice, and FBI. Various
industry groups also serve as advisors to the committee.
- The Intermodal Surface Transportation Efficiency Act of 1991 provided $5
million annually through 1997 in HTF contract authority for the Joint Project.
Of the $5 million, $3 million is allocated to the States for participation
in regional motor fuel tax enforcement task forces and $2 million is provided
to the IRS to supplement its fuel tax enforcement efforts.
- The District of Columbia and 49 States are participating in the joint project.
Nine regional task forces meet on a regular basis to exchange information,
plan strategy, and organize cooperative enforcement efforts. The task forces
include both IRS and State criminal investigation and audit personnel.
- The Omnibus Budget Reconciliation Act of 1993 required that diesel fuel,
on which Federal tax was not paid, be dyed to differentiate it from taxed
fuel. In one of the largest coordinated enforcement efforts, over 16,000 trucks
were checked for illegal use of dyed fuel in January 1995 under Operation
Red Alert, covering 21 States. Over $200,000 in penalties were proposed in this operation.
- To supplement the roadside inspection program, IRS has entered an interagency
agreement with FHWA to distribute nearly $7 million in IRS funds to States
willing to conduct roadside diesel fuel inspections on behalf of the IRS.
More than 25 States are expected to participate.
- The HTF revenue (net of recent tax rate increases) has increased substantially
since the changes in the Federal diesel fuel excise tax became effective January
1, 1994. In 1994, the HTF revenue from diesel fuel tax was up over $1 billion
compared to 1993, with as much as $700 million of the increase attributed to improved compliance.
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