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Effect of New “Executive Order” on NFA Trusts

by / Thursday, 29 August 2013 / Published in Latest posts, Law

News outlets are stating that President Obama has announced another “executive order” dealing with gun control.  That’s not strictly true.  The BATFE submitted a proposed regulatory rule to the White House for approval last week, and Vice President Biden announced the administration’s intentions with respect to the rule.

Some background information is necessary to understand the rule.  Under various federal laws, ownership of machine guns, “silencers”, short-barrel shotguns, and other items is heavily regulated.  Under BATFE (a.k.a. “ATF”) regulations, a person desiring to own any of these “NFA weapons” (“NFA” means National Firearms Act) has to submit the proper application to the BATFE; obtain a certification from the local chief law enforcement officer (the “CLEO”) in the person’s locale to own the NFA weapon; provide two passport-sized photos; and submit fingerprints.  However, the last three requirements apply to natural persons rather than “legally created” persons such as corporations, trusts, and limited liability companies.  Using a trust or corporation isn’t anything new or novel–I’ve been setting up entities to hold NFA weapons for nearly a decade.

The main reason owners use an entity to hold NFA weapons is to dispense with CLEO certifications.  Many CLEOs do not provide certifications for NFA weapon applications simply because they don’t want the potential (or political) liability.

I have only seen the most recent abstract of the proposed rule, which is:

“The Department of Justice is proposing to amend the regulations of the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) regarding the making or transferring of a firearm under the National Firearms Act. The proposed regulations would (1) add a definition for the term “responsible person”; (2) require each responsible person of a corporation, trust or legal entity to complete a specified form, and to submit photographs and fingerprints; and (3) modify the requirements regarding the certificate of the chief law enforcement officer (CLEO).”

So what, exactly, will the rule do?  It will require that the “responsible persons” associated with the entity (we don’t know what those are yet, but they could be members, officers, shareholders, directors, managers, trustees, and beneficiaries) submit photographs and fingerprints to the BATFE along with the application.  It is unknown what the proposed modification of the CLEO certificate will be, although the prior draft of the proposed rule eliminated the CLEO certification.

Assuming that the CLEO certification is eliminated or unmodified, the immediate effect of the order is probably negligible–any new applications will be accompanied by the fingerprints and photographs of a “responsible person.”  The future consequences are less certain.  What if a trustee or officer resigns or dies, and a successor is appointed?  Will the entity be at risk of violating the NFA (subjecting the NFA weapons to forefeiture) while the person submits fingerprints and photographs?  It can take several months to process an application, and during that period of time the entity would not be in lawful possession of the NFA weapons.  What happens while the application of the new responsible person is being processed?  These are all issues that we hope will be addressed during the comment period.

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