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As we reported on September 13, the Bureau of Alcohol, Tobacco and Firearms (ATF) is looking at closing what has been referred to as “the trust loophole” for National Firearms Act (NFA) items. In essence the primary reason for using a trust will be null and void. This will have implications for Special Occupation Taxpayers (SOT) and NFA transfer dealers.
ATF has proposed a rule change that will require trusts and other corporate entities to go through the same background check process as individuals; including the requirement of each responsible party listed to obtain the signature of their chief law enforcement officer (CLEO).
The tax stamp approval period at that time of our initial advisory was averaging 9 months. After the 2-week federal government “shutdown” that time has now been quoted as increasing to as long as 15 months.
ATF cites the reason for this as the influx of corporations and trusts as applicants as buyers of NFA items want to beat the proposed deadline at the end of the comment period, the two week furlough and the addition of 14 new NFA examiners who are undergoing training and are unfamiliar with the process.
Trusts are corporate entities that have been allowed to possess NFA items since the NFA’s inception in 1934. In our original advisory we laid out the various reasons why people use the trust route with regard to NFA. The primary reason was a trust being exempt from the CLEO approval.
The requirement for an applicant’s CLEO to sign the federal tax stamp form is a holdover from the 1930s. There were no databases kept of known criminals or prohibited persons, there was no NICS system nor were there background checks of any kind required for the purchase of any firearms at the time. The logical step for the technology and mindset of 1934 was to have local law enforcement attest to the character and nature of the individual applicant.
This leaves approval to the whim or personal or political beliefs of the CLEO regarding such items. In other cases it comes down to the CLEO not having the time to complete the paperwork.
Although ATF has opened a request for comment on the proposed rule and comments are strongly opposing it; this was a decision handed to the ATF through Attorney General Eric Holder and directed by President Barrack Obama. As such this will be taken as a mandate by the ATF and there is a high likelihood that the comments will go unheeded.
The problems will begin for manufacturers of transferable NFA items such as short barreled shotguns, short barreled rifles and sound suppressors or silencers.
NFA items can legally be acquired in all but a handful of states. Despite that fact, many CLEOs will not sign the form. The trust route bypassed the CLEO signature and made NFA items available to many customers who would have been unable to obtain them otherwise. It is important to note that these customers are law-abiding citizens complying with the law, but meeting a roadblock on the individual transfer route.
If the rule should be put into place as written, the demand for transferable NFA items will diminish overnight.
The second wave of this rippling effect would then be felt by transfer dealers of NFA items in areas where a CLEO will not guarantee sign off. Most of the dealers in question will not be able to sell their inventory requiring them to have to either sell to a dealer in another region or return the NFA items to the original manufacturer.
This could get extremely problematic for trustees who have NFA transactions in process when the rule is put into place and they cannot legally take possession of the items. Transfer dealers may be forced to refund customers’ money long after the items were originally paid for.
The rule is still in the request for comment phase and there may be legal challenges if the comments are ignored. Should the ruling go forward it would represent the single largest restriction on firearms and firearm accessories ownership since the 1994 Federal Assault Weapon Ban. The difference in this situation is that the law is not being imposed through congress, but through the federal bureaucracy.