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What Last Week’s “Executive Action” on NFA Trust and Corporate Transfers Means To You

I’ve known Kel Whelan for almost as long as I’ve been active on the internet. Based on his background I asked him to write a guest post for SSD on the Obama administration’s recent announcement regarding a change in policy on NFA Trust and Corporate Transfers for NFA items. It’s gotten a lot of folks’ hackles up and by extension made the small industry of producers of these items a bit nervous. So why Kel? That’s simple. He shares his point of view freely and is honest about what he sees. Additionally, I don’t personally know anyone who is closer to the issue. He is really into this whole situation. For example, he once led a class-action lawsuit attempting for the removal of the CLEO signoff and has dealt with NFA firearms and the corresponding laws exclusively throughout his career. And finally, I see him on the road quite a bit and he has this uncanny ability to know at least one good restaurant in each of the 50 states as well as some foreign countries. That alone can be critical.

So, with no further ado, here are Kel Whelan’s thoughts on last week’s announcement.

First off: nothing yet. Because no law change has been enacted at this time.

But, this past Thursday morning, the Obama White House announced an executive action that they claim would close an alleged loophole that allows individuals to obtain items such as machineguns, short barreled rifles, and silencers (known as “Title II” or “NFA” firearms, as they fall under this part of the National Firearms Act) without submitting to any background check. What the President has really done is not any law change that goes into effect immediately, but has instead put pressure on the Department of Justice to write and accelerate a proposed rule change regarding how trusts and corporations are transferred NFA items.

If you’re not familiar with the process of buying, say, a short-barreled-rifle, and why someone would purchase them under the name of a corporation or trust instead of in their own name, a moment of history on the process. Ever since people have been legally buying and selling machineguns, silencers, and other NFA items in compliance with the transfer laws set in place since 1934, the process has traditionally been established and understood. To begin the transfer process, an individual pays the seller for the item, gets a Form 4 (the application to transfer the firearm from seller to buyer – think of it something akin to a car title change) from the seller, goes to the local Police Chief or Sheriff to get fingerprint cards done, staples passport photos to the form, pays a $200 transfer tax fee, and has a statement on the rear of the form signed by the Chief Law Enforcement Officer or “CLEO” with jurisdiction over the individual’s area of residence.

The statement in question is a couple simple sentences that say: “I certify that I am the chief law enforcement officer of the organization named below having jurisdiction in the area of residence of (Name of Applicant). I have no information indicating that the transferee will use the firearm or device described on this application for other than lawful purposes. I have no information that the receipt or possession of the firearm or device described in item 4 would be place the transferee in violation of State or local law.” In a simpler age, most CLEOs would sign this. If you’re in a firearms-friendly area, or have a Pro-2nd Amendment CLEO, they may sign without any hassles. But in today’s political environment, the assumed political — note not “legal” — liability of a Sheriff having one’s name associated with an unknown individual obtaining a “dangerous weapon” may not be something the politician wants to get involved in. They aren’t giving permission, they’re just saying they have no information that you’d misuse it and that possession isn’t against the local laws. Which, in a small town in the 1930’s, might have been a reasonable question to ask the local sheriff. But in a large metropolitan area today, it’s unreasonable to expect the sheriff would even know anything about you enough to feel comfortable signing the form. And if your sheriff doesn’t like guns? Then he’s probably not signing these forms for anyone. He doesn’t have to. Since the CLEO signoff amounts to an unfunded Federal mandate, local law enforcement isn’t compelled in any way to help out the BATFE in completing Federal paperwork. “Ain’t my job” is a 100% legit response here.

If you lived in an area where the CLEOs won’t sign the forms and you wanted to have an NFA item, you were out of luck. Perhaps the CLEOs in the next city or county signs, but the ones in your jurisdiction don’t. Short of moving addresses, you couldn’t begin the Federal registration scheme because of local roadblocks. This became frustrating enough for some legal-minded people back in the 90′s that they actually broke the man-rules and read the instructions(!), discovering that the law defines a transferee as “any individual, corporation, company, association, firm, partnership, society, or joint stock company.” §179.85 requires the CLEO signature portion of the form to be completed for identification of an “individual” — but not for a trust or any of the other entities that may act as something of a holding vehicle for the NFA items. Since a trust or corporation is not always made up of a single individual person and can often stretch over many geographical jurisdictions, a requirement for fingerprints, photographs and CLEO signature cannot and do not apply to trusts and the like. This came as something of a discovery to the previously unaware market, and purchasing items using a trust became something of an overnight epiphany for individuals that were formerly stopped by local CLEOs from getting their items transferred to them.

Establishing a trust is a fairly easy process, and there have been a number of attorneys that have met the demand by tailoring professionally-written trust documents specifically for holding NFA firearms. (See www.texasnfatrust.com for example of a good source.) The “trust route” has also been rapidly adopted by many purchasers not only because it avoids complications with local roadblocks, but because it gives more flexibility than registering the item in one’s own name. A huge benefit is the ability to add one’s family members to the trust, so dad, mom, and adult children may all be able to use and be in possession of the trust’s property. Conversely, if the item was not on a trust and instead individually registered to dad, then mom’s taking of the family short-barreled-rifle to the range for target practice would be an illegal transfer with serious jail-time repercussions.

So, there’s a summary of trusts, some of their benefits, and why people would use them to obtain NFA items. Why would this attract the attentions of the White House, and what are they worried might happen with this status quo?

As the volume of trust transfers has increased dramatically over past years, the BATFE’s NFA Branch recognized that these were being approved with no background checks done on the people obtaining firearms via a trust, as opposed to the backgrounding process that individual transferees are subject to. An individual submitting a Form 4 would submit to fingerprint checks outsourced to the FBI, and the BATFE has ability to verify eligibility utilizing five criminal databases in-house. There is no requirement for a National Instant Criminal Background Check System (NICS) call-in upon pickup of an NFA item (The 4473 form that is completed by the dealer upon pickup of the firearm after the NFA transfer is done has a checkbox stating “No NICS check was required because the transfer involved only National Firearms Act firearm(s).”). So a trust purchaser doesn’t receive the background checks an individual Form 4 transferee would have gone through, or a NICS check upon pickup of the item like a normal handgun or rifle purchase would require. This raised concern for some both inside and outside the government. The National Firearms Act Trade and Collectors Association (NFATCA) brought this to the BATFE’s attentions back in 2009 in an attempt at compromise, which hopefully drives the “be careful what you ask for” adage home to everyone. The BATFE NFA Branch came up with some working ideas on how to incorporate background checks with minimal impact on the workload and speed of transfers. The NFA Branch’s proposed rule change was sent up the chain over a year ago, but more or less sat stale, and for various reasons never got traction to move forward.

This does raise the question: is there a real problem with trust or corporate ownership? Has there ever been a criminal that has gotten a NFA firearm via a trust who otherwise wouldn’t have legally been able to do so? In short, it hasn’t been anything close to a widespread problem, but there has been the occasional ineligible person attempting to buy via a trust. There have also been pranks pulled by otherwise-eligible applicants that make it obvious the trust route is open to abuse. As an example, fictitious names, such as cartoon characters, have been submitted as responsible parties of trusts. (Who does that to prove a point? Assumedly the same guys that got a kick out of putting things like “zombie slaying” down as their “reasonable necessity to possess” on the forms.) This left the BATFE in an awkward position where they can’t rightfully approve the form. In an age of liability, it’s irresponsible to assume a regulatory agency should approve a machinegun transfer you claim is for “Spongebob” and the reason you need it is “because the voices tell me to buy them.”

Forwarding to today’s executive action: it is basically a hurry-up order from Obama for the DOJ to take the NFA Branch’s proposal they’d been sitting on, make some additions and changes to it, make it their own, and expedite it forward through the rule-making process. The DOJ’s Obama-encouraged proposed rule change can be found here: https://www.atf.gov/sites/default/files/assets/inside-atf/2013/082913-wash-machine-guns-destructive-devices-and-certain-other-firearms.pdf (Note that the time period for public comment isn’t listed, as it hasn’t yet been published in the Federal Register as required, but with the executive branch’s go-fast mandate behind it, it assumedly will be soon. Once the formal version is posted, there should be a 90-day period for public comment.).

The .pdf linked above proposes a huge change in the existing process for trust and corporate NFA purchasers. The line that’s causing the firearms community to be in sky-is-falling mode is that, if this ruling is approved as-is, CLEO signoffs would be required for each “responsible person” listed on the trust or corporation. Responsible persons are defined by “any individual possessing, directly or indirectly, the power to direct or cause the direction of the management, policies, and practices of the legal entity, insofar as they pertain to firearms.” Which is pretty much everyone that would be on the trust. There’s also language where the ATF “recognizes that…a trust, partnership, association, company, or corporation may change, and is considering a requirement that new responsible persons submit Form 5320.23 within 30 days of the change”. The ability to comply with the paperwork requirements to obtain new NFA items may become near-impossible for hundreds of thousands of prospective buyers (even if they are already owners of existing NFA items under the current registration scheme). Required paperwork updates will need to keep flooding in even after a transfer is completed, as trusts and corporations often change members for various, routine reasons. This will add greatly to the workload of the examiners at the Branch. The Form 5320.23 is yet to be written, so it’s too early to tell what the form will look like, how long it will take to complete or process, or how to add to or amend it if you have more trustees or employees than blank lines on the form, for instance.

The government’s laughable spoonful of sugar to help this bad medicine go down is that they acknowledge that the current CLEO statement language on their forms could cause local law enforcement to not sign them, and is agreeable to remove the section regarding them having no information about the use of the firearm for other than lawful purposes. But the required forms will still state that “the official is satisfied that the fingerprints and photographs accompanying the application are those of the responsible person and that the certifying official has no information indicating that possession of the firearm by the responsible person would be in violation of state of local law.” At this time they don’t have any new phrasing thought up, and will be requesting your comments on what the new CLEO statement should say, which could make for some entertaining public submissions. Perhaps the new wording will make it easier to get the signoffs from formerly hesitant CLEOs, but this is highly doubtful. There’s still nothing compelling a local government entity to use their unpaid resources to help process some obscure Federal form. To boil this all down: we’re all being put back where we started in the bad old days, where thousands of otherwise-legal individuals are not being able to obtain a legal NFA item because their local anti-gun politician doesn’t feel like signing the form, regardless of how the ATF’s statement is worded. The DOJ themselves estimate these new requirements will add a burden of almost $15 million per year in preparation and processing costs, and plow along in their wrong assumption that local law enforcement will just volunteer their staffs and shoulder their portion of this cost. In a time when law enforcement budgets are stretched thin, unpaid participation from local agencies is not going to happen. If you think it was hard to get a CLEO to sign for one person standing in his office, imagine his hesitation in being asked to scribble a signature and run multiple background checks for each person in an eight-person family trust, or a 50-person corporation. And if some of these individuals are in different jurisdictions or states, multiple CLEOs would have to sign multiple forms to complete an all-or-nothing game where every member of the trust or corporation would have to find a CLEO that is willing to sign off, or the entire trust would be ineligible to complete transfers, even for otherwise eligible trustees.

In short, this all means that one of the main reasons people ran to the high ground of the trust route (getting around local roadblocks) will be pretty much gone if their CLEOs still refuse to sign forms. If you or any member of your trust or corporation live in an area where CLEOs don’t sign, you’re just not going to be able to purchase that NFA firearm you wanted, whether you’ve got a trust or not. It would return things to a time when a local Police Chief’s whimsy, cronyism, or personal political leanings determined whether or not you may begin the transfer process to buy an NFA firearm. That will have a major impact in a dealer’s ability to sell (and willingness to stock) these items in areas where CLEOs do not sign, not to mention the complications and paperwork processing slowdowns that are bound to happen with the addition of submitting multiple fingerprint cards, photos, and CLEO signoffs for each responsible person listed in the trust or corporation.

One irony here – and there are many – is that the easier way for an individual to get restricted firearms may soon be to apply to become a Federal Firearms licensee (FFL) themselves. Decades ago, the BATF used to encourage this, then reversed itself. It is not legal to obtain an FFL for the sole purpose of collecting, but as long as you give it a stab at selling and satisfy the other issues (zoning, etc.), you can be a dealer. As a dealer, you can have as many employees as you want, anywhere around the country, all of which can be authorized to possess the FFL’s NFA and other firearm sales samples. And while most wouldn’t want to go through the hassles or ongoing expenses do this, if the Obama administration makes it impossible for tens of thousands of NFA enthusiasts to legally participate in the process as it is today, people will be forced to come up with creative solutions that comply with the laws in future.

One assuredly non-hypothetical result of this announcement is that the NFA Branch expects to see quite a large influx of transfer applications in the immediate future, as dealers are reporting a huge boom of NFA sales. Buyers are rushing to get transfers started before any anticipated law change affects their ability to purchase. This week, Obama has created an NFA version of the AR15-and-PMAG-buying frenzy his last 23 executive actions caused over the past year. This, of course, is going to clog an already overworked and underfunded/understaffed NFA Branch even more than it is already (which is a lot). So brace for even slower transfers this fall, no fault of the NFA Branch.

Currently, all applications will be processed like they always have. If you purchase NFA items as an individual with a CLEO signoff, not using a trust or corporation, your situation is unchanged. But it’s shaping up to be pretty bad if you can’t get a CLEO signoff, and there are big hassles ahead for your trust even if you can. At least it’s not an executive order going into effect immediately. At this time, it’s an accelerated proposal that can still be shot or watered down. There’s hope that this public attention to the process could lead to the Branch getting more funding and ability to hire more examiners if public outcry and political pressure is brought to counter the executive branch’s desires. However things play out, overwhelming the comment period with alternatives and copying your Representatives on your concerns are the only opportunities to soften this blow.

Sending a short note of your opinion and suggestions is a great way to be involved in making firearms law history. It’s easy, it’s fast, and you don’t have to write a book – just tell them what you disagree or agree with and make suggestions. Whether the government acts on them is another story, but nothing gets done if you only participate in internet grumbling and don’t actually take up the opportunity to participate in the law-making process itself.

- Kel Whelan

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26 Responses to “What Last Week’s “Executive Action” on NFA Trust and Corporate Transfers Means To You”

  1. 2-BPM says:

    Thank you for taking the time to write this explanation up, it was extremely helpful in understanding the proposed changes.

  2. Aaskov says:

    Kel, you have always demonstrated a great deal of personal & professional integrity; and taking the time to inform SSD readers of the current NFA situation just reinforces that. Thanks for the post, Amigo.

  3. Mayflower Research & Consulting says:

    Excellent explanation Kel!

  4. majrod says:

    Thanks! Great write up and well done also.

  5. Stefan S. says:

    Executive Orders issued for outside the Executive Branch are unconstitutional and illegal. Read your constitution. The Dear Leader forgets this. Just because the media and the RINO republicans do not call him on this doesn’t make them legal!

    • JayN says:

      If I understand things correctly, the ATF is under the executive branch.

      • z0phi3l says:

        Doesn’t help that the legality and Constitutionality of the BATF have always been in question, too bad Bush didn’t just disband them and been done with it

        • Bradkaf308 says:

          Why are there so many different federal LE agencys and not just one with multiple departments? How much money would be saved reducing the size of the head-shed?

  6. Jason says:

    Thanks very much for this writeup!

  7. Safranco says:

    Grateful for your time, sir. Very informative.

  8. walter shumate says:

    Thank you for your work to help us understand this news!

  9. Average joe says:

    Awesome information, thanks for taking the time to spell it out! Keep up the good fight!

  10. Whiskey Kilo says:

    Thank you Kel for taking the time to explain something no one in the mainstream media wanted to explain.

  11. Sal Palma says:

    I’m going to take a slightly different view of the proposed changes; however, I don’t see a serious issue. There two reasons these NFA trusts became the defacto motis operandi.
    First, the wording on the CLEO certification. Second activist CLEO refusal to sign irrespective of State Law.
    The fact that the ATF was not running background checks on the responsible individuals of a trust or corporation is procedural. Nothing in current law prevents the ATF from doing that. So that’s the first fix and the Director of the ATF can easily do that. Lastly CLEO certification should only attest to the legality of the transfer in his or her jurisdiction, and not ask the CLEO to express a hypothetical opinion.
    The later is a rules change. You don’t need an executive order to get the desired result.

    • Paul Hurst says:

      Perhaps that is your take, but as an FFL here are the top reasons cited by my customers on why they go with Trusts:

      1) 95% – More than one person can possess the item. That is a huge win for families. With the individual option, only I can possess. Other family members cannot use unless I am there.

      2) 33% – CLEO will not sign. Does not care what wording is, just plain will not sign as he does not believe NFA should be legal.

      3) 25% – Ease – no prints/photos/signatures. Form can be filled out and dropped in mail immediately.

      3) 25% – no paper trail to local LEO. Even if CLEO does sign, some folks do not want CLEO to have copy of form. They understand CLEOs change, and if anti-gun CLEO is hired/elected he gets access to all prior forms.

  12. Paul VW says:

    I have one correction to this and it’s an important one that we should remind our elected officials of. A completed 4473 and a NICS check are required when picking up am NFA item for a trust or corporation. Check the NFA handbook, it’s in there. So no FFLs are completing transfers without a background check unless they’re doing it wrong.

    • Kel says:

      It’s admittedly a subject with conflicting advice.

      The Handbook (not the law) gives advice:

      “Chapter 9.12.1
      NFA Transfers to other than individuals.
      Subsequent to the approval of an application requesting to transfer an NFA firearm to, or on behalf of, a partnership, company, association, trust, estate, or corporation, the authorized person picking up the firearm on behalf of, a partnership, company, association, trust, estate, or corporation from the FFL must complete the Form 4473 with his/her personal information and undergo a NICS check. See also, question P60 in the ATF FAQs.”

      Vs.

      2008 BATFE Newsletter also provides conflicting guidance on the subject:

      “TRANSFER OF A NATIONAL FIREARMS ACT FIREARM TO A CORPORATION OR OTHER LEGAL ENTITY
      ATF has been increasingly asked questions about the procedures for the transfer of a National Firearms Act (NFA) firearm to a corporation or other legal entity, such as a trust, that is not a Federal firearms licensee (FFL).
      When transferring a firearm to a corporation or legal entity you must use an ATF Form 4 Application for Tax Paid Transfer of a Firearm.
      The FFL will identify the corporation or other entity on the Form 4 application by the legal name as the transferee. No individual name, such as the name of the president of the corporation, shall be included in identifying the transferee.
      The Articles of Incorporation or other documentation establishing the legal entity must be included with the Form 4 application. The documentation must identify a point of contact for the corporation or other entity and must be sufficient for ATF to establish the legitimacy of the existence of the corporation or other entity.
      If the firearm being transferred is a machinegun, short-barreled rifle, short-barreled shotgun, or destructive device, an officer or director of the corporation or other entity must complete item 15 on the reverse side of the Form 4.
      Items 13, 14, 16, and 17 of the Form 4 do not require completion for a transfer to a corporation
      or other entity nor is the submission of ATF F 5330.20, Certification of Compliance with 18 U.S.C. 922(g)(5)(B), required.
      Procedure after approval
      Approved NFA transfers are exempt from the NICS background check. So, when the FFL arranges for the disposition of the NFA firearm to a representative of the corporation or other entity, only the ATF
      Form 4473, Firearms Transaction Record, must be completed by the representative of the corporation or other entity.
      All other recordkeeping requirements of the Gun Control Act must be met.”

      • Kel says:

        When in doubt, I’d go with what the law itself says. The BATF FAQ says no NICS needed. ATF’s newsletter to FFLs says NICS not needed. The chapter-and-verse of 18 USC 922 (t)(3)(B) says no NICS needed.

        The only place I know of where NICS is prescribed is the Handbook.
        But that handbook is just a loose guide co-written by a private advocacy group and somewhat blessed off by ATF, with the preface stating:

        “This publication is NOT A LAW BOOK. Rather, it is intended as a “user friendly” reference book enabling the user to quickly find answers to questions concerning the NFA. Nevertheless, it should also be useful to attorneys seeking basic information about the NFA and how the law has been interpreted by ATF. The book’s Table of Contents will be helpful to the user in locating needed information…The book is the product of a joint effort between ATF and the National Firearms Act Trade and Collectors Association. ATF takes this opportunity to express its appreciation to the Association for its assistance in writing and making this publication possible.”

        (Took me a sec to look it up, but there it is! – emphasis mine)

  13. Reverend says:

    All I know? I’m having to spend money I’d rather not spend to make up for the political posturing of the POTUS.

    Getting a little tired of having to move up time-tables because of someone who is both ill-informed about laws, firearms, and the Constitution.

  14. 2-137OPS says:

    Great write up. What about the restriction on foreign imported weapons? Did that come out on the same day?

  15. [...] Soldier Systems Daily recently ran an excellent guest article (excerpted above) about the recent White House announcement, its implementation and its potential impact. If you’re interested at all in better understanding the matter, please read the entirety of the post here. [...]

  16. Joe says:

    I appreciate this in-depth analysis of the challenges our community faces in light of the Executive Branch’s actions. I look forward to the revelation of the wording and excitedly anticipate the public comment period. I place this petty, vindictive, and unjustified affront to our rights equal in importance, if not more so, than the poison injected into the Firearm Owners Protection Act. The Executive’s intent is known, our window of opportunity is known, our resolve is known. We are vigilant, informed, communicative, and capable. Now, we will utilize our time wisely, to gather resources and gird for the struggle ahead.

  17. [...] in that case? And here is an excellent article about the proposed changes for anyone interested. What Last Week?s ?Executive Action? on NFA Trust and Corporate Transfers Means To You – Soldier Syst… "They that would give up Essential Liberty, for a little temporary Safety, deserve [...]

  18. Sam says:

    Will my in process transfer be effected? I filed the paperwork and trust about 4 months ago! What will happen? Does anyone know?

    • Dave says:

      Same here, mine was filed back in April. Does this affect transfers to trusts that are already in process with ATF?

  19. patrick says:

    here is my question…..i have a nfa firearm i that i possess through a corporation…..i have had this for about 5 years….is it going to be required that everyone that is part of this corporation need to send in fingerprints/mugshots ect so i can still possess it?