What Happens After Your FFL is Revoked?
Options for Staying in the Firearms Business

The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) has the authority to revoke a federal firearms license if the holder has willfully violated any provision of the Gun Control Act (GCA) or any regulation issued under the GCA. Fortunately for federal firearms licensees (FFL or FFLs) ATF generally revokes fewer than 100 licenses per year. ATF recognizes that license revocation is the death penalty for a business and imposes this sanction sparingly; limiting it to those FFLs agency officials believe are unlikely to operate their businesses in compliance with the law.

What if you are one of the FFLs who goes through an administrative revocation hearing and then loses your license? Alternatively, you may choose to surrender your FFL in lieu of going through a stressful and expensive revocation proceeding. In either instance are you forever barred from participating in the firearms industry in any way? This article addresses the options for persons who previously held FFLs to continue working in the firearms industry.

Background

The GCA requires all persons engaging in the business of manufacturing, importing or dealing in firearms to obtain a license issued by ATF. FFLs are required to create and retain records of acquisition and disposition; manufacturers and importers are required to mark the firearms they manufacture and import; transfers of firearms to unlicensed purchasers must comply with the interstate controls of the GCA and be recorded on ATF Form 4473; and FFLs must comply with all other requirements of the law and regulations.

ATF has the right to conduct warrantless inspections of FFLs (1) in connection with a criminal investigation of a person other than the FFL; (2) for purposes of firearms tracing; and (3) for purposes of conducting an annual inspection to ensure compliance with the record keeping provisions of the GCA. Inspections that do not fit within one of these three criteria must be conducted with the consent of the FFL or with a warrant issued by a federal judge. The vast majority of violations ATF cites against FFLs occur during annual compliance inspections.

The GCA provides that ATF may, after notice and opportunity for a hearing, revoke any GCA license if the holder of the license has willfully violated any provision of the GCA or any rule or regulation prescribed under the statute. The majority of federal courts have interpreted the term “willfully” to mean a violation of the statute or regulations that is deliberate, knowing or reckless. To prove a willful violation the government must provide evidence that the licensee knew of the legal obligation and purposefully disregarded or was plainly indifferent to the requirement. In most reported cases, ATF establishes willfulness through previous Reports of Violation issued during annual compliance inspections. ATF may also rely upon the fact that field divisions previously issued warning letters or held a warning conference with the licensee for the same or similar violation for which the license is proposed for revocation.

Licensing provisions of the GCA require ATF to issue a license to any person who meets the criteria outlined in the statute (18 U.S.C. §923(d)(1)). One of the criteria is that “the applicant has not willfully violated any of the provisions of this chapter or regulations issued thereunder.” Thus, if ATF believes a particular applicant has committed willful violations of the GCA or regulations, ATF is not required to issue the license. ATF may also deny a license application on the basis of a false statement on the license application, a violation of 18 U.S.C. §924(a)(1)(A).

New License Application

As stated above, the licensing criteria of the GCA give ATF the authority to deny a license application submitted by a person who previously committed willful violations of the GCA or regulations. It should not surprise anyone that ATF uses this authority to deny an application submitted by the same individual, corporation or partnership whose license was, at some point in the past, revoked or surrendered due to willful violations. In such situations ATF has concluded the FFL committed willful violations of the law or regulations and is unlikely to operate the firearms business in compliance with the law. Under these circumstances, the agency will probably not look favorably on issuance of a new license that would allow the applicant to continue manufacturing, importing or dealing in firearms. Approving the application would invalidate all of the agency’s efforts in revoking the license.

However, a more difficult question is presented if the applicant is an individual who was a corporate officer of the revoked or surrendered FFL. The “applicant” would not be the same entity as the corporate FFL that had its license revoked, and ATF would, theoretically, have the authority to issue the license. The same issue is presented if the applicant is a newly created corporation and the corporation’s officers include individuals who were “responsible persons” for the former revoked FFL (a “responsible person” is defined on the license application, ATF Form 7, as a sole proprietor and, in the case of a corporation, partnership or association, any individual possessing, directly or indirectly, the power to direct or cause the direction of the management, policies and practices of the corporation, partnership or association, insofar as they pertain to firearms. ATF generally takes the position that all corporate officers, corporate directors and majority shareholders are responsible persons who must be disclosed on the license application. ATF may also require that managers be listed as “responsible persons” if their duties give them sufficient authority over the firearms business). Again, the corporate entity would be different from the corporation whose license was revoked, and the statute would give ATF the authority to approve such an application.

Unfortunately, ATF generally views such applications as presenting “hidden ownership” because of the involvement of the former FFL or responsible persons of the former FFL. ATF’s practice in such situations is to disapprove the new application based on failure to disclose the involvement of the former FFL or responsible persons in the new business. Alternatively, ATF may deny the new application on the basis that the applicant is the successor of the former FFL and impute the former FFL’s willful violations to the applicant. Both theories fall under the “hidden ownership” theory which is discussed below.

“Hidden Ownership”

In a line of cases issued from 1972 to 2014, federal courts have upheld ATF denial of license applications submitted by corporations and individuals on the basis of what ATF officials refer to as “hidden ownership.” Reported cases involve new corporations created following the revocation of an FFL or situations where responsible persons from a revoked or surrendered FFL go to work for another licensee. In these cases ATF takes the position that the applicant’s failure to disclose the involvement of certain responsible persons on the license application is a willful false statement that warrants denial under the GCA. Even if the alleged responsible person is purported to be a mere employee without the authority to direct the operations of the firearms business, ATF may not agree. It may be difficult to persuade ATF that the involvement of an official from a revoked FFL in the new business is other than as a responsible person. Accordingly, responsible persons of former FFLs whose licenses were revoked or surrendered due to willful violations of the law and regulations may find it difficult to play any role in a new FFL.

If the new business is operating at the same premises as the revoked/surrendered FFL, was formed shortly after revocation of the previous FFL and acquires the inventory of the former FFL, ATF may conclude the new business is a successor of the former business. In these situations, even if the responsible persons are different, ATF may conclude the new applicant is the successor of the former FFL and impute the willful violations of the revoked FFL to the new applicant. Alternatively or in addition to this theory, ATF may conclude that one of the primary purposes in forming the new corporation was to circumvent the prohibitions of the statute. ATF may conclude that the new corporation was formed, in whole or in part, so that the old business can continue to operate under a new name and under a different corporate entity. In these situations it is not necessary for ATF to find a willful false statement on the license application. The license application will be denied on the basis that the new company is a sham created to get around the previous company’s license revocation, and the application will be denied on the basis of the predecessor’s willful violations of the GCA and regulations.

ATF’s position on hidden ownership and the federal courts’ support thereof will make it difficult for a revoked FFL to play a significant role in a different firearms business. This will be particularly true for a sole proprietor, but it may also apply to an individual who was an officer or other responsible person for an FFL whose license was revoked or surrendered due to willful violations. There should be no problem with such individuals working for other members of the firearms industry as mere employees who are not responsible persons. Nonetheless, such individuals should be prepared to provide evidence to ATF that their role in the firearms business is limited to avoid endangering the license of the business on the basis of hidden ownership. The author discusses this option below.

Options for Individuals Associated with Revoked or Surrendered FFLs

Individuals whose FFLs are revoked/surrendered or who are responsible persons for such FFLs may continue to work in the firearms industry in several ways.

Firearms Parts Business

Individuals associated with revoked or surrendered FFLs may continue to manufacture, import, export and deal in parts that are not regulated as “firearms” under the Gun Control Act or National Firearms Act. Manufacturers and exporters of firearms parts and components must register with the Department of State. The International Traffic in Arms Regulations in 22 C.F.R. Part 122 and information on State’s website (www.pmddtc.state.gov) provide guidance on the registration process. With the exception of firearm frames or receivers (which fall within the GCA definition of “firearm”) no GCA license is required to manufacture, import, export or deal in firearm parts and components.

Importers of parts and components for firearms must register with ATF under the Arms Export Control Act. The fact that an individual or company has previously violated the Gun Control Act or implementing regulations is not a legal basis for ATF to deny a registration application. The easiest way to register as an importer is to submit the registration application, ATF Form 4587, through the www.pay.gov website. The registration fee is $250 per year. Importation of parts and components for firearms requires an approved ATF Form 6 import permit from the ATF.

Persons who choose to engage in a firearms parts business must be extremely vigilant about so-called “80-percent receivers.” This issue was addressed in detail in the article published in Small Arms Review, Vol. 21, No. 3 (April 2017). If you choose to manufacture, import, export or deal in unfinished items that you believe have not reached a stage of manufacture where they are classified as “firearms,” you should take steps to ensure that ATF agrees with the classification. The consequences for you and your business if the agency concludes otherwise are significant, and not in a good way.

Employment with Other FFLs

There is no legal bar to any person working for a federal firearms licensee, even if the employee was previously involved with a revoked or surrendered FFL. The author notes, however, that if employment requires possession of firearms or ammunition, the individual may not be a felon, unlawful drug user or other category of prohibited person listed in 18 U.S.C. §922(g). I also note that if the individual previously held an FFL that was revoked or surrendered due to willful violations, or if the individual was a responsible person with such an FFL, ATF may have problems if such an individual is a responsible person with another FFL. As explained above, ATF may conclude the involvement of a responsible person from a previously revoked or surrendered FFL indicates hidden ownership by the predecessor FFL whose license was revoked. ATF could impute the violations of the revoked FFL to the new employer and attempt to revoke the successor’s license on the basis of those violations.

If the successor FFL fails to report the new employee as a responsible person on their license application (whether a new application or a renewal application), ATF could take the position the omission is a willful false statement that warrants denial of application.

If employment with another FFL is a possibility, advance consultation with the appropriate ATF field division is an option for avoiding problems. Explaining the role of the individual in the FFL and providing a written job description may avoid misunderstandings about whether the individual is a responsible person. Approaching ATF in advance may also avoid any charges for a false statement if the individual is not listed as a responsible person on the original or renewal application.

Submission of New License Application

As stated above, the GCA allows the ATF to deny a license application from an applicant who has willfully violated the statute or regulations. ATF may also deny a license application if any of the responsible persons were previously associated with an FFL that was revoked or surrendered because of willful violations. However, there is nothing in the statute that requires ATF to deny a license to a previous willful violator. ATF has the discretion to issue a license even if the applicant had its license revoked or the applicant surrendered its license in lieu of revocation.

The author is aware of situations where the agency has used its discretion to issue licenses to companies or individuals who previously violated the GCA. I caution that such license issuance is rare, as ATF reserves license revocation for companies it believes are not likely to operate in compliance with the law. Allowing the same company to re-enter the firearms industry is an unusual step and one that most ATF field divisions would view with skepticism. Convincing ATF that a former FFL is deserving of a second chance will be an uphill battle. Situations where ATF has approved such applications in the past involved companies that (1) have stayed out of the firearms business for a significant time period, e.g., at least 3 years; (2) demonstrate the company’s commitment to regulatory compliance through adoption of a comprehensive compliance program; (3) no longer employ personnel directly responsible for the company’s previous willful violations; and (4) are able to satisfy ATF officials that the company will operate the firearms business in compliance with the law.

The author cautions that any applicant who pursues this option will face significant challenges in getting the FFL issued. Consultation with qualified counsel is essential before considering this route.

Conclusion

License revocation is a sanction ATF imposes on those few FFLs the agency believes have committed serious, willful violations of the GCA or regulations and are unlikely to comply with the law in the future. Circumventing the revocation or surrender of a license is difficult, as ATF is unlikely to approve a new license for a business if there is evidence the applicant is a successor in interest of the predecessor FFL or if ATF believes there are false statements on the application relating to responsible persons. The good news is there are options for individuals associated with a revoked or surrendered FFL to continue working in the firearms industry. Establishing a firearms parts business or being employed by another FFL are viable options to consider.

ABOUT THE AUTHOR

Teresa Ficaretta is an expert on provisions of the Gun Control Act, the National Firearms Act, import provisions of the Arms Export Control Act, firearms and ammunition excise tax, and the federal explosives laws. Teresa served for over 28 years at the Bureau of Alcohol, Tobacco, Firearms and Explosives and held positions including Deputy Assistant Director, Deputy Chief Counsel, and Associate Chief Counsel (Firearms and Explosives). Teresa is the owner of Ficaretta Legal Services, www.ficarettalegal.com, and can be reached at teresa@ficarettalegal.com or (301)358-3553.

Applying for a Federal Firearms License

We are frequently asked to provide assistance to individuals and companies who wish to obtain a federal firearms license (FFL) from the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF). This article provides guidance on the process of applying for a FFL and how to avoid problems and delay.

Background

The Gun Control Act of 1968 (GCA), 18 U.S.C. Chapter 40, makes it unlawful for any person to engage in the business of importing, manufacturing or dealing in firearms without obtaining a license from ATF. The GCA sets forth the fees ATF may charge for a license and the criteria ATF must apply in approving or denying an application. The statute requires ATF to issue a license if the following criteria are satisfied:

• The applicant is 21 years of age or over (this requirement applies only to sole proprietors and not to corporations, partnerships and other business organizations);
• The applicant (including responsible persons, discussed in more detail below) is not prohibited from transporting, shipping or receiving firearms or ammunition under the statute;
• The applicant has not willfully violated the GCA or implementing regulations;
• The applicant has not willfully failed to disclose any material information or made any false statement as to any material fact on the license application;
• The applicant has in a state premises from which he will conduct business subject to the license or from which he intends to conduct business within a reasonable period of time;
• The applicant certifies to compliance with state or local law in the place where the licensed premises are located; and
• In the case of a dealer’s license, the applicant certifies that secure gun storage or safety devices will be available at the licensed premises.
• The GCA requires ATF to approve or deny an application within the 60-day period beginning on the date it is received. ATF’s position is that the 60-day time period begins to run on the date the agency receives a complete and accurate application.

Pursuant to ATF’s regulations implementing the GCA, applicants for manufacturer and importer licenses do not need a separate license to deal in the firearms they manufacture or import, but ATF does require a separate license for each place (premises) at which the firearms business will be conducted, with the exception of separate storage facilities.

Before applying for an FFL, it is imperative to understand the responsibilities that go along with a license. Licensees must comply with all recordkeeping and firearm and ammunition transfer requirements and restrictions. In addition, the GCA authorizes ATF to conduct warrantless compliance inspections once every 12-month period, during which ATF may inspect all records required under the GCA and the regulations. In addition, licensees are required to respond to ATF trace requests within 24 hours of receipt, which can place a significant burden on resources. Licensees who fail to operate their businesses in compliance with federal and state law may be subject to inventory seizures, federal and state investigations and/or license revocation.

The Process of Applying for a License

1. Business Establishment

Before starting the licensing process with ATF, every business needs to be created under state law. There are any number of forms a business can take, including a sole proprietorship, general partnership, limited liability company, limited liability partnership and various types of corporations. Before ATF will issue a license, it will confirm that the applicant may engage in the business specified on the Form 7 Application for Federal Firearms License, including possession of all licenses, permits or variances required under state and/or local law. It is also important to ensure that zoning for the location will not present an issue for operation of a firearms business. One of the most common reasons for license denial is a zoning problem of which the applicant was not aware before filing the license application.

The Form 7 application requires identification of the physical address of the licensed premises and whether the premises are owned, leased or rented. If the property is leased or rented, ATF may contact the landlord to ensure the tenant/applicant is not prohibited under the terms of the lease or rental agreement from operating a firearms business at the premises. It is wise for an applicant to discuss this in advance with the landlord to avoid delays in processing the ATF application.

2. Fill out the Form 7 Application

Applicants for FFLs must complete ATF Form 7, Application for Federal Firearms License. The form is available on ATF’s website, www.atf.gov. The form is fillable and should be completed on a computer for readability. Once completed, the Form 7 should be printed on standard white paper and all copies executed under penalties of perjury and include information relating to each “responsible person” of the applicant.

The instructions for the Form 7 define the term “responsible person” to include a sole proprietor and— In the case of a corporation, partnership, or association, any individual possessing, directly or indirectly, the power to direct or cause the direction of the management, policies, and practices of the corporation, partnership, or association, insofar as they pertain to firearms.

In the case of a partnership, responsible persons would include all partners. In the case of a corporation, responsible persons would generally include all officers and directors. However, if a particular officer or director does not have the authority to direct the management and policies of the corporation as to its firearms business, that individual is not a responsible person. For example, ATF has in the past advised licensees that a Vice President for Human Resources is not a “responsible person” if the individual’s authority does not extend to operation of the firearms business. If the business has an on-site manager, ATF generally views that individual as a responsible person. Questions about particular employees and whether they are responsible persons should be referred to ATF’s Federal Firearms Licensing Center.

The law and regulations also require that each responsible person submit photographs and fingerprints with the Form 7. Photographs must be 2×2 inches and be recent (within the last 6 months); fingerprint cards must be completed on FBI Form FD-258. Most state and local police departments prepare fingerprint cards for a modest fee.

Applicants for manufacturer licenses may also be required to complete ATF Forms 5000.29 and 5000.30. Information on ATF’s website indicates it is the responsibility of the applicant to determine whether these forms are required and ATF investigators will verify the need for the forms during the on-site application inspection. Both forms are required for manufacturers only if the manufacturing activity may result in a discharge of pollutants into navigable waters. Questions concerning completion of these forms should be referred to the Federal Firearms Licensing Center or the nearest ATF office.

3. Submit the Application to ATF and State/Local Law Enforcement

The instructions for the Form 7 indicate that Copy 3 of the Form 7 must be submitted to the Chief Law Enforcement Officer (CLEO) of the locality in which the premises sought to be licensed are located. The CLEO is the Chief of Police, Sheriff or an equivalent officer in the appropriate jurisdiction.

One copy of the Form 7 must be submitted with the appropriate fee, photographs and fingerprint cards to a post office box in Atlanta, Georgia. The other copies of the Form 7 should be retained by the applicant. The copy of the Form 7 mailed to ATF is processed by contract personnel in Atlanta. Those personnel deposit the payment for the license and forward the license application to the Federal Firearms Licensing Center in Martinsburg, West Virginia. Personnel in Martinsburg will make sure the application is complete. If the application is not complete the applicant will be contacted, and the additional information will be requested. If the applicant fails to provide information within the timeframe requested, the application will be deemed abandoned. Personnel in Martinsburg will send the responsible person fingerprints and photographs to the Federal Bureau of Investigation (FBI) to conduct a criminal background check. While background checks are being processed, the application will be forwarded to the appropriate ATF field division for a field inspection.

What happens if the background checks result in a determination that one or more of the responsible persons is prohibited from possessing firearms because of a felony conviction or other GCA disability? If such a determination is made, the FBI will notify the individual of the determination and his or her appeal rights. ATF will also be notified that the individual is prohibited. ATF will then notify the applicant the individual is prohibited and may not act as a responsible person on the license. The applicant will be given an opportunity to revise the license application to remove the prohibited individual so the application may continue to be processed. If the applicant refuses to remove the individual as a responsible person, ATF will deny the application.

4. Application Inspection

All applicants for FFLs will be contacted by their local ATF office for a field inspection. An Industry Operations Investigator (“IOI”) will make contact to arrange a convenient time for the on-site application inspection. During the inspection, the IOI will go over the requirements of the law and regulations. It is likely the IOI will complete a form titled “Acknowledgement of Federal Firearms Regulations.” This form lists a number of areas of regulatory compliance, including the following:

• Definitions (e.g., “ammunition,” “firearm,” “frame or receiver,” “engaged in the business”)
• Miscellaneous Provisions (e.g., right of entry and examination, straw purchase, tracing request, compliance with state law, reporting thefts or losses of firearms)
• Licenses (e.g., duration/renewal, premises covered, discontinuance of business)
• Conduct of business (e.g., sales/deliveries between FFLs, gun show guidelines, NICS requirements, obliterated serial number, non-resident aliens, sales to law enforcement officers)
• Required records (e.g., Form 4473, acquisition & disposition record; report of multiple sales, personal firearms)
• State laws and local ordinances (e.g., waiting periods, concealed carry permits)
• NFA dealer (the IOI will go over this topic only if the applicant will be engaging in transactions involving National Firearms Act firearms)
• Importer (the IOI will go over this topic only if the applicant will be importing firearms, ammunition or other defense articles)
• Firearms and ammunition manufacturers (the IOI will go over this topic only if the applicant is applying for a manufacturer license)

The IOI will go over all the requirements outlined on the acknowledgement form and answer any questions the applicant raises. Applicants should take advantage of this training opportunity and ensure you understand all that is expected of you as a federal firearms licensee.

One of the most important aspects of the on-site license application inspection will be determining compliance with state or local law. As indicated above, the Form 7 application requires certifications that the applicant has either complied with state or local law or that the applicant will comply with state or local law before conducting the firearms business. The IOI conducting the inspection will ask about required state business licenses, compliance with zoning ordinances and compliance with any other requirements of state law. ATF investigators are generally familiar with the requirements of state and local law and will expect applicants to either have all licenses/qualifications or be in the process of obtaining such qualifications from appropriate authorities. A wise applicant will be familiar with state and local law requirements before the ATF investigator shows up for the license application inspection.

If it is not possible for the applicant to comply with state or local law or if the applicant fails to comply with such law, ATF has the authority to deny the application. The basis for denial will be a false statement on the Form 7 application indicating that the business to be conducted is not prohibited by state or local law. For example, if the business premises are zoned residential and zoning ordinances prohibit operation of a business in such an area, it will not be possible to operate the firearms business in compliance with local law. Unless there is a process for obtaining a zoning variance, ATF will likely deny such a license application. ATF will also deny a license application (or revoke a license if it has already been issued) if the applicant fails to obtain any business licenses or other qualifications required under state law.

5. Issuance of the License

If the field inspection results in a finding the applicant is qualified and meets all the criteria for licensing, the ATF field division will recommend the Federal Firearms Licensing Center issue the license. The licensing center will print the license in Martinsburg, West Virginia, and mail it to the applicant. Licenses are valid for 3 years from the date of issuance.

If the field inspection results in a finding that the applicant fails to meet the licensing criteria of the GCA, the ATF field office conducting the license application inspection will recommend denial. If the Director of Industry Operations for the ATF field division agrees, the applicant will receive notification that the license has been denied. The notice of denial (ATF Form 4498) will provide the legal basis for the agency’s determination and provide information on requesting a hearing to review the denial. The applicant will be given 15 days from the date of receipt of the notice in which to request an administrative hearing. If no request is submitted, the application will be disapproved. Administrative hearings to review license denial recommendations are held before ATF hearing officers. If the hearing results in a finding that the denial is legally justified, the applicant will receive a final notice of denial. The agency’s denial may be appealed to federal district court. If the hearing results in a finding that the application should be issued, the license will be issued by the Federal Firearms Licensing Center.

Conclusion

Before deciding to obtain a federal firearms license, it is important to learn the requirements of federal, state and local laws applicable to firearms businesses. Firearms are heavily regulated commodities, and FFLs must maintain consistent levels of regulatory compliance to avoid criminal and civil penalties, including license revocation.

The information contained in this article is for general informational and educational purposes only and is not intended to be construed or used as legal advice or as legal opinion. You should not rely or act on any information contained in this article without first seeking the advice of an attorney. Receipt of this article does not establish an attorney-client relationship.

ABOUT THE AUTHORS

Teresa Ficaretta is an expert on ATF regulations under the Gun Control Act, the National Firearms Act, the Arms Export Control Act and Federal explosives laws. Teresa served as legal counsel to ATF for 26 years, followed by 2 years as Deputy Assistant Director in Enforcement Programs and Services. Teresa joined Reeves & Dola in 2013 and was partner from January 1, 2016 until December 31, 2017. Teresa can be reached at jtficaretta@gmail.com.

Johanna Reeves is the founding partner of the law firm Reeves & Dola, LLP, in Washington, DC (www.reevesdola.com). For 15 years she has dedicated her law practice to advising and representing U.S. companies on compliance matters arising under the federal firearms laws and U.S. export controls. Since 2011, Johanna also has served as Executive Director for the FireArms Importers/Exporters Roundtable (F.A.I.R.) Trade Group (http://fairtradegroup.org). In 2016, Johanna was appointed by the U.S. Department of State, Bureau of Political-Military Affairs to serve on the 2016-18 Defense Trade Advisory Group (DTAG). Johanna can be reached at 202-683-4200, or at jreeves@reevesdola.com.

Manufacturing Ammunition in Compliance with Federal Law

Fortunately, the complex web of federal and state regulation of the domestic defense industry has not halted manufacture of products essential for national security. Indeed, there has been significant growth in the ammunition industry, due, in part, to shortages in certain calibers of small arms ammunition. Ammunition was largely deregulated under the 1986 amendments to the Gun Control Act of 1968. Nonetheless, there are still significant federal requirements for persons or businesses who wish to manufacture ammunition, including the federal explosives laws, the Arms Export Control Act, the Firearms and Ammunition Excise Tax and the Chemical Facility Anti-Terrorism Standards. This article provides an overview of those requirements to assist industry members entering this growing segment of the defense industry.

1. Gun Control Act of 1968

The Gun Control Act of 1968 (GCA), 18 U.S.C. Chapter 40, controls the manufacture, import, transport, transfer and possession of ammunition and ammunition components, such as cartridge cases, primers, bullets or propellant powder. In 1986, Congress passed the Firearms Owners’ Protection Act (FOPA), which significantly amended the GCA. Included among the changes was removal of most of the controls over ammunition. However, there remain the following requirements and restrictions:

Licensing: Persons who engage in the business of manufacturing or importing ammunition must obtain a license from the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF). No license is required for persons who only deal in ammunition. A license must be obtained for each site at which manufacturing will take place.

Prohibited Persons: The GCA lists several categories of persons prohibited from shipping, transporting, receiving or possessing ammunition. This includes those convicted of crimes punishable by imprisonment for a term exceeding one year, illegal aliens, unlawful drug users and those dishonorably discharged from the U.S. military.

Armor Piercing Ammunition: “Armor piercing ammunition” may be manufactured and imported only for sale to government agencies and in limited quantities for testing or experimentation. In addition, record keeping requirements apply to armor piercing ammunition but not to other types of ammunition.

Importation: Import requirements, including the Form 6 import permit, apply to ammunition. Armor piercing and nonsporting ammunition are generally prohibited from importation except for sale to government agencies.

2. Federal Explosives Laws

The federal explosives laws, 18 U.S.C. Chapter 40, regulate commerce in “explosive materials.” The statute defines the term “explosive materials” as explosives, blasting agents and detonators and “explosives” as any chemical compound mixture or device the primary or common purpose of which is to function by explosion. The definition requires ATF to publish an annual list of explosives that fit within the statutory definition. The List of Explosive Materials is available on ATF’s website at www.atf.gov/explosives/qa/what-%E2%80%9Cexplosives-list%E2%80%9D. Smokeless powder, nitrocellulose, tetrazene and other chemical compounds used in manufacturing ammunition are listed.

The federal explosives laws make it unlawful for any person other than the holder of a Federal explosives license or permit to transport or receive explosive materials. The law also prohibits the distribution of explosive materials by a holder of a license or permit to any person other than a licensee or permittee.

All persons engaging in the business of importing, manufacturing or dealing in explosive materials must obtain a license issued by ATF and are required to create and maintain records of their acquisition and distribution of explosive materials. All persons are required to store explosive materials in accordance with regulations issued by ATF.

Exemptions from the requirements of the federal explosives laws are provided, in pertinent part, for the transportation, shipment, receipt or importation of explosive materials for delivery to any federal or state agency; for small arms ammunition and components thereof; and for the manufacture of explosive materials under the regulation of the U.S. military for their official use.

ATF regulations implementing the federal explosives laws define “ammunition” as:

Small arms ammunition or cartridge cases, primers, bullets, or smokeless propellants designed for use in small arms, including percussion caps, and 3/ 32 inch and other external burning pyrotechnic hobby fuses. The term does not include black powder.

ATF’s longstanding position is that the small arms ammunition exemption applies only to .50 caliber or smaller rifle or handgun ammunition, as well as certain shotgun ammunition.

ATF takes the position that smokeless powder designed for use in small arms ammunition is exempt from all requirements of the federal explosives laws and regulations, including storage and record keeping requirements. However, ATF requires persons engaging in the business of importing or manufacturing smokeless powder to have a federal explosives license. ATF also exempts other small arms components from the requirements of the law and regulations, but only if such components are listed in the definition of “ammunition” in 27 C.F.R. § 555.11. This means that smokeless powder and primers are exempt from record keeping and storage requirements. However, other explosive materials used to manufacture ammunition will not be exempt until incorporated into either a complete primer or a complete round of small arms ammunition. For example, tetrazene, used in manufacturing primers, must be recorded in records of acquisition and the daily summary of magazine transactions. Tetrazene must also be stored in storage magazines meeting the construction, tables of distance and other requirements of storage regulations. At the point the tetrazene is incorporated into either a complete primer or a complete round of ammunition, it would be exempt from the requirements of the record keeping, storage and other requirements of federal law and regulations.

Storage requirements for explosive materials are dictated by their classification as high explosives, low explosives or blasting agents. Explosive materials must be stored in Type 1, Type 2, Type 3 or Type 4 magazines, depending on the classification of the explosive materials.

As stated above, the federal explosives laws exempt from the statute manufacture of explosive materials for use of the federal government. Manufacturers with Department of Defense contracts must be careful, however, to segregate products manufactured under such contracts from commercial products. Only explosives manufactured under the federal contracts will be exempt from the record keeping, storage and other requirements of the law. If ATF investigators cannot determine which products are exempt and which are not, violations of the law and regulations may be cited, and penalties may be incurred.

3. Arms Export Control Act

The Arms Export Control Act (AECA), 22 U.S.C. § 2778, gives the President the authority to control the import, export and brokering of defense articles and defense services in the interest of the United States’ national security and foreign policy. Jurisdiction over the permanent importation of defense articles has been delegated to the Attorney General. ATF’s implementing regulations are in 27 C.F.R. Pt. 447 and include the U.S. Munitions Import List, which specifies all covered “defense articles.”

Defense articles regulated under the AECA include ammunition, listed on the United States Munitions Import List, Category III, for both small arms and large caliber weapons over .50 caliber, such as mortars and howitzers. Category III(b) also includes components, parts, accessories and attachments for ammunition, including cartridge cases, powder bags, bullets, jackets, cores, shells (excluding shotgun shells), projectiles, boosters, fuzes and components therefor, and primers.
Persons who wish to engage in the business of importing defense articles must register with ATF. Registration is accomplished by completing ATF Form 4587 and paying the applicable registration fee. The quickest way to register is through the www.pay.gov website and by paying with a credit card.

Importation of smokeless powder, primers and other components of ammunition listed in Category III(b) requires prior authorization from ATF on an approved Form 6 import permit. ATF encourages importers to utilize its e-Forms system to complete and submit the Form 6 application, which may shave two weeks off the usual six-week processing time.

While ATF has jurisdiction over the permanent import of defense articles, the U.S. Department of State has control over the export, temporary import and brokering provisions of the AECA. The U.S. Department of State implements the AECA through its regulations known as the International Traffic in Arms Regulations. The AECA also requires registration of defense articles manufacturers, including ammunition, even if the manufacturer does not engage in exporting defense articles. Registration is accomplished through electronic submission of the Department of State Form DS-2032 to the Directorate of Defense Trade Controls (DDTC). Information on registration is available on State’s website at www.pmddtc.state.gov/registration/index.html.

The base registration fee for manufacturers who do not export defense articles is $2,250 per year.

Export of ITAR-controlled articles, including ammunition, requires prior authorization from DDTC in the form of export licenses. However, export of shotgun shells is regulated by the U.S. Department of Commerce, Bureau of Industry and Security.

4. Firearms and Ammunition Excise Tax

Section 4181, Title 26, United States Code, imposes upon the sale by the importer, producer or manufacturer an 11-percent tax on shells and cartridges.

The term “shells and cartridges” is defined to include:

[A]ny article consisting of a projectile, explosive and container that is designed, assembled and ready for use without further manufacture in firearms, pistols or revolvers. A person who reloads used shell or cartridge casings is a manufacturer of shells or cartridges within the meaning of section 4181 if such reloaded shells or cartridges are sold by the reloader. However, the reloader is not a manufacturer of shells or cartridges if, in return for a fee and expenses, he reloads casings of shells or cartridges submitted by a customer and returns the reloaded shells or cartridges with the identical casings provided by the customer to that customer. Under such circumstances, the customer would be the manufacturer of the shells or cartridges and may be liable for the tax on the sale of the articles. See section 4218 of the Code and § 53.112.

The term “manufacturer” is defined in 27 C.F.R. § 53.11 to include:

[A]ny person who produces a taxable article from scrap, salvage or junk material, or from new or raw material, by processing, manipulating or changing the form of an article or by combining or assembling two or more articles. The term also includes a “producer” and an “importer.” Under certain circumstances, as where a person manufactures or produces a taxable article for another person who furnishes materials under an agreement whereby the person who furnished the materials retains title thereto and to the finished article, the person for whom the taxable article is manufactured or produced, and not the person who actually manufactures or produces it, will be considered the manufacturer.

A manufacturer who sells a taxable article in a knockdown condition is liable for the tax as a manufacturer. Whether the person who buys such component parts or accessories and assembles a taxable article from them will be liable for tax as a manufacturer of a taxable article will depend on the relative amount of labor, material and overhead required to assemble the completed article and on whether the article is assembled for business or personal use.

Manufacturers who make and sell shells and cartridges must file quarterly Firearms and Ammunition Excise Tax Returns with the Alcohol and Tobacco Tax and Trade Bureau (TTB) for any quarter in which the manufacturer sells or uses ammunition it manufactures. Tax must be paid with the quarterly return. Tax may be paid via Electronic Funds Transfer.

More information about payment of firearms and ammunition excise tax may be found in our articles on this subject published in Small Arms Review in Vol. 20, #6 and #7 (July and September 2016).

5. Chemical Facility Anti-Terrorism Standards (CFATS)

The CFATS program identifies and regulates high-risk chemical facilities to ensure they have security measures in place to reduce the risks associated with certain chemicals of interest (COI). The Department of Homeland Security (DHS) administers the CFATS program, which may apply to manufacturers of ammunition if they have specified quantities of COI. COI are listed in CFATS Appendix A: DHS Chemicals of Interest List, 6 C.F.R. Part 27. The goal of the CFATS program is to prevent a terrorist from using COI to cause a significant loss of human life via a deliberate onsite release or theft/ diversion for offsite use.

DHS determines a facility’s risk profile by requiring those in possession of threshold quantities and concentrations of COI to complete a survey known as a Top-Screen. The Top-Screen is an electronic questionnaire completed on the DHS website. On March 29, 2017, DHS published detailed instructions for completing the Top-Screen, titled “Chemical Security Assessment Tool (CSAT) 2.0 Top-Screen Instructions.” This publication includes a wealth of information on who is required to submit the Top-Screen, when it must be submitted, and what to expect after submission. These instructions, as well as other CFATS guidance, are available on the DHS website. After the Top-Screen is completed DHS determines a facility’s risk profile and may require submission of a Security Vulnerability Assessment and a Site Security Plan. The security plan will be evaluated by DHS to ensure the facility’s planned security posture meets specified risk-based performance standards.

A number of chemicals used in manufacturing ammunition are included on the COI list in the regulations, including nitrocellulose and tetrazene. DHS officials advise that once COI are incorporated in articles (as defined in 40 CFR 68.3), they are no longer subject to CFATS requirements. An article means “a manufactured item that is formed to a specific shape or design during manufacture, that has end use functions dependent in whole or in part upon the shape or design during end use, and that does not release or otherwise result in exposure to a regulated substance under normal conditions of processing and use,” and includes most complete primers or rounds of ammunition.

Propellants incorporated into completed rounds that meet the definition of an article are not subject to CFATS reporting requirements. However, prior to incorporation into the round, they may count toward the Screening Threshold Quantity. Individual COI components used to make propellants classified as 1.1 materials are subject to CFATS reporting requirements. The reference to “1.1 materials” means those hazardous materials classified as Category 1.1 by the Department of Transportation. All COIs contained within a propellant that is classified as a 1.1 material are subject to CFATS reporting requirements. However, COIs incorporated within a propellant that is not classified as a 1.1 material are not subject to CFATS reporting requirements.

DHS chemical security inspectors work in all 50 states to help ensure facilities have security measures in place to meet CFATS requirements. DHS has authority to impose civil fines on facilities who fail to comply with CFATS requirements.

Manufacturers of ammunition should review the list of COI to determine whether they have threshold quantities of any of the chemicals listed. If so, manufacturers should complete the Top-Screen and comply with the CFATS requirements to avoid noncompliance and potential penalties, and, of course, to help keep COI out of the hands of bad actors.

Conclusion

Persons who manufacture ammunition in the U.S. are subject to a complex web of federal statutes and regulations. We provide the following checklist as a quick summary of the federal requirements outlined in more detail above:

? Manufacturers of ammunition must obtain a license under the GCA for each site at which manufacture will occur;
? Manufacturers must obtain a license under the federal explosives laws for each manufacturing site and comply with the storage, record keeping and transfer requirements of the law;
? Manufacturers must register with the Department of State, Directorate of Defense Trade Controls;
? Manufacturers must pay excise tax on their sales or use of ammunition;
? Manufacturers of ammunition who import smokeless powder, primers or other components of ammunition must register with ATF as an importer and comply with the permanent import provisions of the AECA; importation of ammunition (including components) is also subject to the requirements of the GCA;
? Manufacturers of ammunition who manufacture or acquire threshold quantities of COI must complete a risk assessment with the Department of Homeland Security and may be subject to further requirements depending on their level of risk.

State law requirements should also be considered by anyone intending on manufacturing ammunition, as licensing and storage requirements may apply. Questions about federal and state requirements should be addressed with qualified counsel.

The information contained in this article is for general informational and educational purposes only and is not intended to be construed or used as legal advice or as legal opinion. You should not rely or act on any information contained in this article without first seeking the advice of an attorney. Receipt of this article does not establish an attorney-client relationship.

About the Authors

Johanna Reeves is the founding partner of the law firm Reeves & Dola, LLP in Washington, DC (www.reevesdola.com). For 15 years she has dedicated her law practice to advising and representing U.S. companies on compliance matters arising under the federal firearms laws and U.S. export controls. Johanna can be reached at 202-683-4200, or at jreeves@reevesdola.com.

Teresa Ficaretta is an expert on ATF regulations under the Gun Control Act, the National Firearms Act, the Arms Export Control Act and Federal explosives laws. Teresa served as legal counsel to ATF for 26 years, followed by two years as Deputy Assistant Director in Enforcement Programs and Services. Teresa joined Reeves & Dola in 2013 and was partner from January 1, 2016 until December 31, 2017. Teresa can be reached at jtficaretta@gmail.com or at 301-892-0372.

16th Annual Firearms Import/Export Conference—Getting Better Every Year

The F.A.I.R. Trade Group and National Shooting Sports Foundation (NSSF) exceeded all expectations with the 16th Annual Firearms Import/Export Conference. The conference was held August 2-4, 2017, at the Grand Hyatt in Washington, DC, and was attended by over 300 industry members, attorneys, consultants and government representatives.

I. August 2 Optional Add-on Sessions

Two optional add-on sessions were offered to attendees. The first session, “The Ins and Outs of Export Documentation” was presented by NSSF consultant Kim Pritula. The second session, “ITAR Agreements, How to Prepare Applications, Amendments, and Implement Approvals” was presented by attorneys Johanna Reeves and Katherine Heubert, both from the law firm Reeves & Dola, LLP. The seminar structure of these sessions provided registrants a valuable opportunity to dive into compliance fundamentals in a smaller-group atmosphere. Both sessions received high praise from attendees, and conference representatives have confirmed next-year’s conference will include optional add-on sessions again, although the topics have not yet been decided.

II. August 3 Presentations

Federal Search Warrants and Regulatory Site Visits—Know the Difference

The first full day of the session began with the presentation, “Federal Search Warrants and Regulatory Site Visits–Know the Difference.” The presenters were attorneys Jeff Beatrice, from the DC office of Bradley Arant Boult Cummings, and Teresa Ficaretta from the DC law firm Reeves & Dola. Mr. Beatrice outlined the tools federal agencies use in conducting criminal investigations, including interviews, grand jury subpoenas and criminal search warrants. He gave tips for conduct during execution of a search warrant and recommendations for answering questions and putting things in writing. Ms. Ficaretta gave a presentation on ATF regulatory compliance inspections, covering ATF’s authority to conduct warrantless inspections, how to prepare for an inspection and what to expect when ATF representatives arrive at the licensed premises. She also outlined sanctions ATF may impose on licensees who fail to conduct their businesses in compliance with the law.

Chemical Facility Anti-Terrorism Standards

The second presenter was Ms. Kelly Murray, Deputy Branch Chief, Compliance, from the Department of Homeland Security (DHS). Ms. Murray gave an overview of the requirements of the Chemical Facility Anti-Terrorism Standards (CFATS) that apply to certain “chemicals of interest.” The purpose of the CFATS program is to prevent an attack on a chemical facility that could cause death and injury. Ms. Murray explained that the term “chemicals of interest” is defined in implementing regulations to include certain compounds used in the manufacture of firearms and ammunition. Such chemicals include potassium nitrate, sodium nitrate, aluminum powder, RDX, HMX and PETN. She also explained that only threshold quantities of chemicals of interest are subject to CFATS, and certain other exemptions apply. If a facility is in possession of threshold quantities of the chemicals, then the facility must provide information to DHS so a risk assessment may be conducted.

Significantly, Ms. Murray pointed out that chemicals incorporated into articles are not subject to CFATS. Accordingly, propellant powder incorporated into complete rounds of ammunition is not subject to CFATS. Primers made with chemicals of interest are likewise exempt. Ms. Murray also indicated that facilities are excluded from the statute if they are owned by the Department of Defense.

Ms. Murray advised that DHS has authority to fine a facility if it fails to notify the agency it is in possession of threshold quantities of chemicals of interest. The agency also has the authority to issue an order to cease operations for a facility’s failure to comply with the law and regulations.

During a question and answer session Ms. Murray clarified that smokeless powder and black powder are not reportable as chemicals of interest.

This is the first Import/Export conference representatives from CFATS have attended, and attendees appreciated the information provided by the enthusiastic and knowledgeable DHS representative.

Foreign Military Sales Programs

Michael Slack from the U.S. Department of Defense, Defense Security Cooperation Agency, provided an invaluable and intriguing overview of the Foreign Military Sales (FMS) Program. Mr. Slack walked through the role of the FMS program in supporting the foreign policy of the United States through government-to-government sales of defense articles and defense services. He explained how FMS sales are made, the role of Congress and the conditions imposed on foreign partners. He also explained the differences between FMS and direct commercial sales.

The United States government provides a wide range of services and training to help U.S. exporters market their products abroad. Important information is available at http://export.gov/.

Lunch with Keynote Speaker Kevin Wolf

The conference keynote speaker was Kevin Wolf, former Assistant Secretary of Commerce for Export Administration in the Department of Commerce and now a partner with Akin, Gump, Strauss, Hauer & Feld. Mr. Wolf, always an entertaining and informative speaker, gave attendees an update on the status of Export Control Reform, which began during the Obama Administration.

Bureau of Alcohol, Tobacco, Firearms and Explosives—Panel

Marvin Richardson, Assistant Director for Enforcement Programs and Services, lead an hour-long panel made up of officials from the ATF Office of Enforcement Programs and Services. The ATF officials provided important updates from their respective offices as follows: Curtis Gilbert, Deputy Assistant Director of Enforcement Programs and Services, Andy Graham, Deputy Assistant Director of Field Operations, Krissy Carlson, Chief of the Firearms and Explosives Industry Division, Earl Griffith, Chief of the Firearms and Ammunition Technology Division, Alphonso Hughes, Chief of the National Firearms Act Division, Gary Taylor, Chief of the Firearms and Explosives Services Division and Andrew Lange, Chief of the Office of Regulatory Affairs.

ATF has always provided significant support to this conference. Indeed, the agency worked with the F.A.I.R. Trade Group back in 2002 to bring together government and industry representatives to publicly discuss issues and challenges specific to munitions imports. Although the agency no longer sponsors the conference, it continues to be a critical part. This year, ATF brought close to 50 of its officials and employees to the conference, who remained available to attendees throughout the entire day, and made up the majority of the conference round tables, which took place in the afternoon of August 2.

Field Operations

Standard Operating Procedures (SOPs) for DOD contractors. ATF is in the process of developing such SOPs, but the target date for release is not known.

The ATF Major Inspection Team (MIT) consists of 30 Industry Operations Investigators specially trained to conduct inspections of large-volume manufacturers, importers and dealers. The goal behind the MIT is to yield faster inspections with less disruption to the industry member. In 2016, ATF deployed four MITs. The number of MIT inspections have increased in 2017 to six, as of the date of the conference.

The current number of Industry Operations Investigators throughout the entire country is 790, but 48 more are expected to come on board in 2018. On the date of the conference, ATF field divisions had 162 active inspections of federal firearms licensees. According to ATF, the results indicate a high level of compliance.

Office of Regulatory Affairs

The new Executive Orders on reducing regulations and controlling regulatory costs impose significant barriers to ATF’s ability to amend the regulations. This includes the F.A.I.R. Trade Group petition to change the Form 9 from an application to a notice. While ATF views the F.A.I.R. petition positively, its ability to move forward on the rulemaking is hampered significantly by President Trump’s Executive Order 13771 (Jan. 30, 2017), which requires removal of two regulations for each new regulation.

eRegulation project: Available at https://regulations.atf.gov, project will link ATF regulations to related published information, including rulings, open letters, Federal Register publications and a regulation timeline showing recent revisions.

Firearms and Ammunition Technology Division

Six new Firearms Enforcement Officers (FEOs) have been hired and trained, bringing the total number of FEOs to 12. The increase has resulted in a reduction in processing time for firearms classifications to 30 to 90 days.

The processing time for most marking variances is now 30 days.

In 2017 to date, the Firearms Industry Services Branch has processed 250 firearms classifications.

National Firearms Act Division

This new Division, established in April 2017, is made up of two branches: the NFA Industry Processing Branch, headed by Amy Stely, is responsible for industry forms processing and has 29 employees. The second branch, the NFA Government Support Branch, has nine employees and is headed by David Howell. This branch processes special (occupational) tax applications, Form 10 processing, exemption applications under section 479.33 and industry expedite requests for government and law enforcement. The Government Support Branch also provides expert testimony in ATF cases.

The Division is currently evaluating business processes with the goal of streamlining those processes. So far, the review has resulted in new processes for data entry so that the process now takes 72 hours instead of two to three months.

There is still a backlog of Form 4 transfer and registration applications received before the effective date of ATF Rul 41F. To address the backlog, the Division has adopted new processes for applications to transfer firearms to trusts, and employees are working overtime each week. The goal of the Division is to reduce Form 4 processing from nine months to six months.

Firearms and Explosives Services Division—Imports

The current processing time for the Form 6 permit application is 13 to 15 days.

Current staffing levels in the Imports Branch: 6 Specialists and 6 Legal Instruments Examiners.

Form 6 import permit application currently under review, and a new revised version should be available soon.

In light of the recent Office of Foreign Assets Control sanctions imposed on the Russian firearms manufacturer Molot-Oruzhie, OOO, ATF will be providing guidance in the near future.

Firearms and Explosives Industry Division

Newest release of the State Laws and Published Ordinances publication, 32nd edition, is only available electronically on ATF’s website at www.atf.gov/firearms/state-laws-and-published-ordinances-firearms-32nd-edition.

A new Federal Firearms Regulations Reference Guide will be published soon, exact date to be determined.

ATF will publish new rulings on marking of firearms with synthetic frames, electronic storage of Forms 4473.

Round Table Sessions

For the last several years, since F.A.I.R. and NSSF first introduced the round tables to the conference agenda, the feedback has been extraordinarily positive. These sessions allow attendees to speak informally with representatives from federal agencies and outside experts. This year, F.A.I.R. and NSSF offered 25 tables with representatives from the Department of Homeland Security, Department of Commerce, Census, State Department, Customs, Treasury-OFAC, Alcohol and Tobacco Tax and Trade Bureau and ATF, as well as tables with outside experts on ITAR agreements, federal search warrants and regulatory site visits.

IV. August 4 Presentations

Panel on Prohibited and Embargoed Countries

The second full day of the conference began with an informative panel discussion titled “Prohibited and Embargoed Countries, the Government’s Perspective.” The panel was chaired by Johanna Reeves from Reeves & Dola, LLP, and the panelists were William Argue from Homeland Security Investigations; Elizabeth Cannon, a federal prosecutor from the Department of Justice, Export Control and Sanctions Section; and Steve Goodman, a Special Agent from the Counter-Proliferation Investigations Unit of Homeland Security Investigations.

Ms. Reeves opened the panel by stating that the goal of prohibiting exports of defense articles and defense services to prohibited and embargoed countries is to safeguard national security so this sensitive equipment may not be used against the U.S. She noted that globalization makes this a difficult goal. Panelists agreed that our export controls integrate with national security policies. Ms. Cannon noted there is no shortage of export cases involving the Export Administration Regulations and the International Traffic in Arms Regulations. Despite a high volume of prosecutions, she noted that defense articles continue to leave the country illegally. She noted how important it is for federal prosecutors to work with the licensing agencies and the intelligence community.

Mr. Goodman noted that export investigations are complex and working with members of industry is essential. He assured attendees that when they receive a visit from an investigator this does not mean they did something wrong. Mr. Goodman emphasized the importance of gathering information from industry members to prevent and deter illegal exports.

Ms. Reeves asked panelists to list potential red flags industry members should look for to identify potential unlawful exports. Mr. Argue emphasized the importance of knowing your customer and ensuring sellers know where their products are going. This is the case even if the products are being purchased for domestic use. Mr. Goodman stated that cash payments are suspicious, as are requests to ship products quickly. He also said multiple e-mails requesting the same products from different parts of the world bear further inquiry. Any inconsistencies from usual sale transactions should be viewed with caution.

All panelists urged industry members to contact federal investigators if there are any suspicious attempts to purchase their products. They recommended contacting the ICE tip line at 866-DHS-2-ICE. There is also an HSI tip form available online.

Update on State Department/DDTC IT Modernization

Kimberly Hancher from the Department of State Directorate of Defense Trade Controls (DDTC) provided an update on the State’s IT modernization project. She announced that the new Defense Export Control & Compliance System (DECCS) is up and running and will be handling commodity jurisdiction requests. DECCS will soon take over case tracking from the current MARY system and will eventually replace the DTrade system currently used for most licenses. The modernization process will improve security for State and users and include a dashboard to track the status of all license submissions.

State Department Export Licensing and Agreements

The final segment was on compliance under the International Traffic in Arms Regulations. The presenters, Tom Trotto, Drew Bayliss and Don Fanning, were all licensing officers from Licensing Division 6 at the U.S. Department of State, Directorate of Defense Trade Controls. Their presentation included an overview of DDTC and other federal agency stakeholders in export controls, export license application preparation and common critical errors with the license application forms or support documentation, DDTC policies on denying licenses or returning licenses without action (the dreaded “RWA”) and important pointers on how to avoid license denials and RWAs.

Conclusion

The 16th Annual Import/Export Conference provided members of the firearms industry with invaluable information about regulatory compliance. Unmatched in industry expertise, this pinnacle event in the firearms and ammunition industries continues to be the only conference strictly focused on import and export trades brought to the industry by the industry. Each year the conference gets better, and we look forward to attending again next year.

The information contained in this article is for general informational and educational purposes only and is not intended to be construed or used as legal advice or as legal opinion. You should not rely or act on any information contained in this article without first seeking the advice of an attorney. Receipt of this article does not establish an attorney-client relationship.

Corporate Structure Changes May Affect Federal Firearms Licenses

When the Gun Control Act was enacted in 1968, the vast majority of federal firearms licensees (“FFLs”) were sole proprietors. That is no longer the case, as even small business owners create corporations, limited liability corporations, limited liability partnerships, or general partnerships to carry on their firearms businesses. People create these entities for various reasons, including the separation of business property from personal property, limiting liability of the owners for any tortious or unlawful activities of the business, and obtaining more favorable tax treatment under state and federal law.

Corporations and other artificial legal entities are legally entitled to obtain licenses to engage in firearms businesses under the Gun Control Act. FFLs often run into problems, however, when there are changes in the structure, form, or ownership of the business that result in a change in control that must be reported to the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”). More significantly, such changes may result in a situation where a new federal firearms license is required.

This article addresses some of the more common types of changes in business structure and the steps FFLs should take to ensure compliance with federal law. This article does not address the registration requirements of the International Traffic in Arms Regulations, 22 C.F.R. Parts 120–130.

BACKGROUND

The Gun Control Act of 1968 (GCA), 18 U.S.C. Chapter 44, requires that persons engaging in the business of importing, manufacturing, or dealing in firearms obtain a license from ATF. The term “person” is defined in the statute to include any individual, corporation, company, association, firm, partnership, society, or joint stock company. A license must be obtained for each business and each place at which the applicant will do business. Licenses are not transferable, and in the event of the lease, sale, or other transfer of the business operations, the successor must obtain a new license before engaging in the business of importing, manufacturing or dealing in firearms.

Regulations provide a limited right for certain types of successors to operate a firearms business on behalf of a predecessor license holder. This right is limited to (1) the surviving spouse or child or executor, administrator, or other legal representative of a deceased licensee; (2) a receiver or trustee in bankruptcy; and (3) an assignee for benefit of creditors. As with changes in control, successors continuing to operate a firearms business must report the succession to the Chief of the Federal Firearms Licensing Center within 30 days from the date on which the successor begins to carry on the business.

Implementing regulations make it clear that licensees continuing to conduct business at the location shown on the license need not obtain a new license merely because of a change in trade name. Adoption of a new trade name must be reported to the Chief of ATF’s Federal Firearms Licensing Center. Regulations also provide that a “change of control” must be reported to ATF within 30 days of the change. A “change of control” consists of a change in actual or legal control over the corporation, partnership, or other licensed entity operating the firearms business. Such a change may result from a change in ownership of the stock of the company, a change in equity ownership, or a merger or acquisition where the FFL survives as a separate legal entity and is not extinguished under state law.

Change of Control Versus New License

It is essential for FFLs to determine whether changes in the firearms business amount to a change of control that must be reported to ATF or result in a new entity operating the firearms business. If the latter, a license application must be submitted by the new entity after it exists and before ownership of the firearms inventory and operation of the firearms business begins. We list a number of common scenarios and the licensing consequences below.

Change in Ownership

Whether a corporation is private or public, there may be changes in stock ownership. Changes in stock ownership may amount to a change in actual or legal control requiring notice to ATF within 30 days of the change. For example, let’s assume there are four family members each holding 25 percent of the stock of a corporate FFL. One of the family members sells his stock to another family member, so the purchaser now owns 50 percent of the stock. This change in stock ownership will give the purchaser a controlling interest in the company. The change in control must be reported to ATF within 30 days of the sale of the stock.

ATF officials have advised FFLs that sales of stock that do not result in a new or different person having a controlling interest in the business do not need to be reported. However, ATF field division personnel may have differing views on whether a particular stock sale does or does not result in a change of control. The safest course of action may be to report all changes in stock ownership to ATF to avoid any appearance an FFL has violated the reporting obligations of the regulations.

Limited liability corporations and limited liability partnerships will have equity ownership, rather than shares of stock. As with corporations, changes in equity that result in a change in actual or legal control must be reported to ATF within 30 days of the change. Again, reporting all changes in equity ownership to ATF may be the safest course of action, as the agency has no published guidance indicating which changes must be reported.

Change in Officers, Directors, or Board of Directors

Changes in the FFL corporation’s officers or directors generally do not result in a change in actual or legal control over the corporation holding the FFL. As long as these changes are not made in conjunction with changes in stock ownership or other transactions discussed in this article, they do not result in a change that must be reported to ATF. However, if the new corporate officers or directors are responsible persons for the FFL and will be dealing directly with ATF officials or signing ATF forms on behalf of the FFL, they should be reported to ATF. A “responsible person” is any individual with the power to direct or cause the direction of the management, policies, and practices of the corporation, partnership, or association insofar as they pertain to firearms. Responsible persons must be reported to ATF when the initial application is submitted and every three years when the license is renewed. New responsible persons may be reported by submitting a letter to the Chief, Federal Firearms Licensing Center, in Martinsburg, West Virginia.

Changes in the Board of Directors likewise need not be reported to ATF, as there is no change in actual or legal control of the federal firearms license holder.

Asset Purchase Transaction

An increasingly popular method of acquiring the assets of a target corporation is an asset purchase contract. These transactions allow the purchaser to acquire only specified assets of a target corporation without all or most of the liabilities. Let’s assume the target corporation is a licensed manufacturer with an inventory of firearms, an established trade name, a well-known website, and employees with significant experience in the firearms industry. An acquiring company approaches the target about purchasing the firearms inventory, trade names, website, employees, and good will of the company. The written asset purchase agreement specifies that the acquiring company will use the assets to operate a firearms business. The agreement also specifies that none of the liabilities of the company will be transferred to the purchaser.

The acquiring company MUST obtain its own federal firearms license before the firearms inventory is transferred and before it begins to operate the firearms business. This is the case whether the target company dissolves under state law or continues as a separate legal entity following the asset purchase. The acquiring company must be incorporated or created under state law, acquire any licenses required by state or local law, and then apply for the license with ATF. The entire process will likely take 90–120 days, depending on state licenses and qualifications and taking into account the 60-day timeframe for issuance of a license under the GCA.

If the firearms inventory of the target company includes firearms subject to the National Firearms Act (“NFA”), 26 U.S.C. Chapter 53, advance planning is even more crucial. The transfer of NFA firearms requires advance approval from ATF, and firearms may not be transferred tax-free unless both FFLs are licensed and have paid special (occupational) tax. Form 3 transfers are currently being processed by ATF in about 60 days. This may mean a delay in transferring registered NFA firearms between a target and an acquiring company after the asset purchase agreement has closed. The acquiring company may not lawfully possess NFA firearms registered to the target company.

Merger and Acquisition

Merger and acquisition is a general term that refers to the consolidation of companies or assets. A merger generally means a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed.

Let’s start with a merger and assume that Company A holds a license as an importer of firearms while Company B holds no GCA licenses. Pursuant to a written agreement, Companies A and B merge and form Company C. Under the written merger agreement, Companies A and B will wind up their affairs at a specified date after the merger takes place and dissolve under state law and Company C will operate the businesses formerly conducted by both companies. Because Company C will be operating a firearms business, Company C must obtain its own federal firearms license before importing firearms or selling firearms previously owned by Company A. Any NFA firearms registered to Company A must be lawfully transferred to Company C before Company A dissolves.

Moving on to acquisition, let’s assume Company A holds a federal firearms license as a dealer in firearms. Company B wishes to acquire Company A and Company B will allow Company A to operate its firearms business. A written acquisition agreement states that Company B will acquire all of the assets and liabilities of Company A on a specified date. The agreement specifies that Company A will continue to exist as a wholly owned subsidiary of Company B.

In this scenario, Company B does not require its own federal firearms license, because Company A will continue to exist as a “person” under the GCA, and Company A will operate its business dealing in firearms. The acquisition of Company A by Company B is a change in control that must be reported to ATF within 30 days of the date of the closing of the acquisition agreement.

Divestiture

A divestiture is the partial or complete disposal of a business unit through sale, exchange, closure or bankruptcy. A divestiture may result from a management decision to cease operating a business unit because there are too many lines of business or if the business unit is not profitable. However, it may also occur if a business unit is deemed to be redundant after a merger or acquisition, or if disposal of a unit increases the resale value of the company.

Let’s assume that Company A has two wholly owned subsidiary companies: B and C. B holds licenses as a manufacturer of firearms and C manufactures parts and components for firearms that require no GCA license. Company A merges Companies B and C, so that only Company B survives. Company A divests itself of Company C. Because Company B survives and continues to operate the firearms manufacturing business, no additional licenses are required. There is also no change of control that must be reported to ATF.

If Company C survived the merger and intended to operate a firearms manufacturing business, then Company C must obtain its own federal firearms license prior to acquiring inventory from B and manufacturing firearms.

Spinoff

A spinoff is the creation of a new company through the sale or distribution of new shares of an existing business or division of a parent company. As an example, Company A has a firearms division licensed as a manufacturer of firearms. The division manufactures and distributes firearms in the U.S. and abroad. Company A determines the firearms division would operate more efficiently if a new business unit is charged with distributing the firearms it manufactures. Accordingly, Company A decides to spin off a new wholly owned subsidiary to distribute the firearms. Company A incorporates Company B under state law to market firearms manufactured by Company A. Company A offers its shareholders the opportunity to exchange shares in Company A for shares in Company B at a significant discount.

Company B must acquire a license as a dealer in firearms. The license must be acquired prior to Company A transferring firearms to Company B.

Conclusion

Changes in the ownership and structure of a FFL may require reports to ATF or issuance of one or more new GCA licenses. It is essential for licensees to consult qualified counsel before undertaking these changes. Failure to understand the difference between a change in control and a relicensing situation may result in disruption of the firearms business while the appropriate licenses are obtained. It may also result in ATF investigating potential violations of the GCA for engaging in the business without a license and violations of the NFA for unlawful transfers of registered firearms.

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The information in this article is for informational purposes only and is not intended to be construed or used as legal advice.

ABOUT THE AUTHORS

Johanna Reeves is the founding partner of the law firm Reeves & Dola, LLP in Washington, DC (www.reevesdola.com). For more than 10 years she has dedicated her practice to advising and representing U.S. companies on compliance matters arising under the federal firearms laws and U.S. export controls. Since 2011, Johanna also has served as Executive Director for the FireArms Import/Export Roundtable (F.A.I.R.) Trade Group (http://fairtradegroup.org). In 2016, Johanna was appointed by the U.S. Department of State, Bureau of Political-Military Affairs to serve on the 2016–18 Defense Trade Advisory Group (DTAG).

Teresa Ficaretta is an expert on ATF regulations under the Gun Control Act, the National Firearms Act, the Arms Export Control Act and Federal explosives laws. Before joining Reeves & Dola in 2013, Teresa served as legal counsel to ATF for 26 years, followed by two years as Deputy Assistant Director in Enforcement Programs and Services. Teresa was elected partner to Reeves & Dola in January 2016.

Both Johanna and Teresa can be reached at 202-683-4200 or at info@reevesdola.com.

Practical Tips for Licensees, Firearms and Transfers Compliance

As outside regulatory counsel to federal firearms licensees (FFLs), we often review inspection reports issued by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF). One of the violations we see ATF citing on a regular basis involves personal firearms commingled with business inventory and not recorded in the acquisition and disposition record. The other problem areas for licensees are transfers of business inventory to employees for personal use and transfers of firearms to contractors and other non-employees for demonstration and evaluation. This article will address the law and regulations governing these business practices and provide practical compliance tips.

I. OVERVIEW OF THE GUN CONTROL ACT RECORDKEEPING REQUIREMENTS

The Gun Control Act of 1968 (GCA), 18 U.S.C. Chapter 44, requires persons engaging in the business of importing, manufacturing or dealing in firearms, so-called federal firearms licensees (FFLs) to keep records of firearms transactions in accordance with implementing regulations. The regulations require FFLs enter each acquisition and disposition of firearms into a permanent acquisition and disposition record (an “A&D record” or “A&D book”), also commonly referred to as a “bound book.” For firearm dispositions to non-licensees, ATF requires FFLs record the transfer on a Form 4473 “Firearm Transaction Record” and check the prospective transferee against the Federal Bureau of Investigation’s National Instant Criminal Background Check System (NICS). In addition, an FFL’s firearm transfer to a non-licensee must comply with all other requirements of federal and state law.

II. PERSONAL FIREARMS

The law and regulations allow FFLs to maintain personal collections of firearms. Personal firearms acquired by a licensee prior to obtaining a license must be recorded as business inventory in the A&D book if the licensee intends to sell the firearms. All firearms acquired after the license is issued that are acquired under the authority of the license must be entered into the acquisition and disposition record.

Conversely, if the firearms are part of the FFL’s business inventory and are then moved into the personal collection of the principal or proprietor, there are hoops the FFL must jump through to ensure the move complies with ATF requirements. The first question is whether the license holder and the collector are the same “person,” as the answer determines whether a transfer will occur, thus triggering the Form 4473 and NICS check requirements.

In one instance, a sole proprietor may hold a license in his or her own name so that the proprietor and the licensee are one and the same. In such a case, movement of firearms from the licensee to the proprietor is not a transfer, and the Form 4473 and NICS check are not required. However, the firearm to be transferred must be recorded in the FFL’s A&D record, with the disposition specifying transfer to the proprietor’s personal collection. If the firearm so transferred is held as part of a personal collection for at least one year, the proprietor may sell it in the same manner as any other non-FFL, with no Form 4473, no NICS check, etc. Of course, the individual must still comply with the interstate controls and all other requirements of the GCA that apply to non-licensees.

If the FFL is a corporation, partnership, limited liability company or partnership (LLC or LLP) or other business entity, then the question of whether the business entity can have a “personal collection” of firearms requires a more complex analysis. Because business entities are artificial persons as opposed to natural persons, it is often more difficult to make the argument that corporations and other legal entities can create and maintain a personal collection of firearms.

First, the concept of a corporation or other business entity engaging in “personal” activities is often at odds with the reasons for which such entities commonly are formed, such as limiting the personal liability of the individuals who formed the entity. Furthermore, a business entity may be created to engage in a for-profit business. To overcome such presumptions, the entity’s formation documents should clearly establish that the business is authorized to hold a personal collection of firearms. Although it is possible these business entities may be created, at least in part, for purposes of collecting firearms, the formation documents must clearly state this purpose. If such documents are sufficient under state law, it is possible the transfer of firearms to a personal collection may be accomplished as indicated above in relation to a sole proprietor. As discussed in more detail below, a transfer of firearms by a corporate FFL to an individual employee for purposes of enhancing his or her personal collection is a “transfer” that must comply with all GCA requirements.

Before we leave the subject of personal firearms collections, it is important to address the storage of personal firearms at the licensed premises. ATF takes the position that all firearms on a licensee’s business premises are for sale and must be entered into the A&D record as inventory. To avoid this presumption, FFLs who bring personal firearms to the licensed premises or who allow employees to bring personal firearms to the premises should tag them with the name of the owner, mark them “PERSONAL FIREARMS—NOT FOR SALE” and segregate them from the business inventory. If ATF conducts a compliance inspection when untagged personal firearms are on the premises, the FFL may be cited for failure to record the firearms in the A&D record.

FFLs who allow employees to bring personal firearms to the licensed premises should adopt clear written policies on tagging and segregation from the business inventory to avoid problems with ATF.

III. TRANSFERS OF FIREARMS TO EMPLOYEES AND OTHERS

As indicated above, we are skeptical that a corporation, limited liability partnership or other business entity may, consistent with state law, create and hold a personal firearms collection. The more likely scenario, and the one we encounter frequently, is an employee of a corporate FFL receiving firearms from the FFL for purposes of maintaining his or her personal collection. This can also occur with an officer or director of a corporate FFL using the license to acquire firearms from another FFL and then transferring the firearms to his or her personal collection. In this situation the firearm is transferred by the FFL holder to a non-FFL holder, a “transfer” which must comply with all the provisions of the GCA. Indeed, ATF made it clear in ATF Rul. 2010-1 (available on ATF’s website at www.atf.gov/firearms/docs/ruling/2010-1-temporary-assignment-firearm-ffl-unlicensed-employee/download, last visited 12/9/2016) that permanent transfers of firearms to employees that are not for business purposes of the FFL are “transfers” that must be recorded on Form 4473, accomplished with a NICS check and recorded as a disposition entry in the A&D book. A permanent transfer of a firearm for purposes of enhancing the employee’s (or officer’s or director’s) personal collection is unrelated to the FFL’s business and must be accomplished in this manner.

Temporary transfers to employees/officers/directors that are not for purposes of carrying out the FFL’s business likewise must comply with all provisions of the GCA. As an example, if an employee wishes to borrow an inventory firearm to go target shooting or hunting, the transaction must be recorded on a Form 4473, a NICS check must be conducted and the disposition recorded in the A&D book. Only if the transfer is temporary, with title remaining in the FFL, and the transfer is for purposes of carrying out the FFL’s business (e.g., display or demonstration to potential purchasers) may the FFL avoid the requirements of the GCA. Even in this situation it is a good practice to make a notation in the acquisition and disposition record indicating the date the firearm was loaned to the employee, the purpose for which loaned and the date it was returned. This procedure will avoid problems if an ATF inspection is conducted during the time period the firearm is in the custody of the employee and is not located at the licensed premises.

ATF Rul. 2010-1 also makes it clear that transfers of firearms to persons who are not bona fide employees of the FFL must comply with all provisions of the GCA. Readers may recall that a ruling issued by the Internal Revenue Service in 1969 and an industry circular issued by ATF in 1972 took the position that temporary assignments of firearms to FFL agents and representatives (including professional writers, consultants and evaluators) were not “transfers” requiring execution of a Form 4473 or otherwise complying with the requirements of the GCA. ATF Rul. 2010-1 superseded the ruling and industry circular, holding that only temporary assignments of firearms to employees for bona fide business purposes of the FFL are exempt from the Form 4473, NICS check and other requirements of the statute. The ruling notes that “bona fide business purposes” means purposes integral to the FFL’s business operations and do not include permanently assigning a firearm to a specific employee or loaning or renting a firearm to an employee for personal use.

So how can a licensee tell the difference between an employee and an agent/contractor? ATF provided guidance on this subject in a 1990 FFL Newsletter (available at www.atf.gov/file/56361/download, last visited 12/9/2016). The newsletter article, titled “Sales Agents,” states that in determining whether an employer/employee relationship exists, ATF considers whether the alleged employee is subject to the employer’s control over the manner in which the work is performed. ATF states that other factors include whether the individual is on the company payroll, whether taxes and Social Security are deducted from pay, whether the individual receives company paid benefits and other indicia of the traditional employer/employee relationship.

ATF Rul. 2010-1 also addressed the differences between an employee or contractor, stating that FFLs exert a higher level of control over employees than they have over contractors and other agents. The ruling states that, unlike contractors and agents, employees work for wages or salaries under direct supervision of the employer. The ruling further states that in the context of employees the employer controls not only the result of the employee’s work, but also the manner, training and hours in which the work will be carried out. By contrast, in contractor or non-employee agency relationships the individual has control of the manner, training and hours of performing the work and is only responsible for the result. The ruling states that because the FFL relinquishes control over a firearm by temporarily assigning it to a non-employee, the GCA requirements apply.

It is likely most FFLs know whether a particular individual is an employee or is a contractor or other agent. If the individual is on the payroll, taxes are deducted from his or her pay and company benefits are provided to the individual, the individual is likely an employee. Contractors or other agents (including writers and evaluators) are not on the payroll and generally receive payment on an hourly basis or through negotiation of a flat fee for services.

We summarize the requirements of the law for temporary and permanent transfers of firearms by FFLs to employees and contractors/agents in the table to the right…

Conclusion

FFLs should ensure that firearms transferred from business inventory to a personal collection are recorded in accordance with the law and regulations. It is also essential that FFLs who allow employees to bring personal firearms to work require tagging and segregation to avoid the appearance that they are inventory. FFLs need to understand the different record keeping requirements for transfers of firearms to employees for FFL business purposes, transfers to employees for personal use and transfers to contractors/agents. Failure to conduct firearms transactions in accordance with the law may result in a variety of penalties, including license revocation, license suspension, civil fines, forfeiture of firearms involved in violations of the law and/or criminal prosecution.

The information contained in this article is for general informational and educational purposes only and is not intended to be construed or used as legal advice or as legal opinion. You should not rely or act on any information contained in this article without first seeking the advice of an attorney. Receipt of this article does not establish an attorney-client relationship.

ABOUT THE AUTHORS

Johanna Reeves is the founding partner of the law firm Reeves & Dola, LLP in Washington, DC (www.reevesdola.com). For more than 10 years she has dedicated her practice to advising and representing U.S. companies on compliance matters arising under the federal firearms laws and U.S. export controls. Since 2011, Johanna also has served as Executive Director for the FireArms Import/Export Roundtable (F.A.I.R.) Trade Group (http://fairtradegroup.org). In 2016, Johanna was appointed by the U.S. Department of State, Bureau of Political-Military Affairs to serve on the 2016-18 Defense Trade Advisory Group (DTAG).

Teresa Ficaretta is an expert on ATF regulations under the Gun Control Act, the National Firearms Act, the Arms Export Control Act and Federal explosives laws. Before joining Reeves & Dola in 2013, Teresa served as legal counsel to ATF for 26 years, followed by two years as Deputy Assistant Director in Enforcement Programs and Services. Teresa was elected partner to Reeves & Dola in January 2016.

ATF Rul. 2010-1 also makes it clear that transfers of firearms to persons who are not bona fide employees of the FFL must comply with all provisions of the GCA.

Gunsmiths Assembling Firearms for Customers May Incur Liability for Excise Tax

Gunsmiths offering firearms for sale in unassembled form must ensure they understand the tax consequences of selling the parts and assembling the firearms on behalf of purchasers.

In the past, most firearms sold to consumers by federal firearms licensees (FFLs) have been fully assembled firearms ready to take to the range or on a hunting trip. A growing phenomenon is for retail dealers to offer firearms for sale in unassembled form so consumers may mix and match components to make custom firearms. Some dealers offer the parts for sale on their website and offer an optional service for assembling the firearms on behalf of the purchaser. Other dealers stock the parts in their brick-and-mortar stores and allow consumers to purchase the parts and request assembly. This practice allows retailers to tie up less capital in stock and provide consumers with custom firearms without the delay required for a special order.

The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) allows gunsmiths to assemble firearms from parts owned by customers without obtaining a manufacturer’s license. This is the case even if the gunsmith sells the parts to the customer and then assembles a firearm to the specifications requested by the customer. ATF requires a manufacturer’s license under the Gun Control Act only if the gunsmith assembles firearms from parts and subsequently sells the assembled firearm to a consumer.

Gunsmiths who assemble firearms from parts furnished by a customer may incur liability for manufacturers’ excise tax when they sell the parts to their customers and then assemble the parts into a complete firearm. This article will address the tax issues applicable to gunsmiths who carry on these activities.

STATUTORY AND REGULATORY BACKGROUND

Section 4181, Title 26, United States Code (U.S.C.), imposes upon the sale by the manufacturer or importer of pistols, revolvers, firearms (other than pistols and revolvers), shells and cartridges. The tax is 10 percent of the sale price for pistols and revolvers and 11 percent of the sale price for firearms (other than pistols and revolvers), shells and cartridges.

The Alcohol and Tobacco Tax and Trade Bureau (TTB) regulations define “firearms” in 27 C.F.R. §53.11 as follows:

Firearms: Any portable weapons, such as rifles, carbines, machine guns, shotguns, or fowling pieces, from which a shot, bullet, or other projectile may be discharged by an explosive.

TTB regulations define “Manufacturer” as follows:

Manufacturer: Includes any person who produces a taxable article from scrap, salvage, or junk material, or from new or raw material, by processing, manipulating, or changing the form of the article or by combining or assembling two or more articles. The term also includes a “producer” and an “importer.” Under certain circumstances, as where a person manufactures or produces a taxable article for another person who furnishes materials under an agreement whereby the person who furnished the materials retains title thereto and to the finished article, the person for whom the taxable article is manufactured or produced, and not the person who actually manufactures or produces it, will be considered the manufacturer.

A manufacturer who sells a taxable article in a knockdown condition is liable for the tax as a manufacturer. Whether the person who buys such component parts or accessories and assembles a taxable article from them will be liable for tax as a manufacturer of a taxable article will depend on the relative amount of labor, material, and overhead required to assemble the completed article and on whether the article is assembled for business or personal use.

The regulations provide that persons who manufacture a firearm for personal use or causes a taxable article to be manufactured for personal use do not incur excise tax liability.

Taxpayers who incur liability for firearms and ammunition excise tax must file quarterly returns on TTB Form 5300.26 and pay tax with the return. Quarterly return periods are listed on the return and on TTB’s website, www.ttb.gov. TTB conducts audits of taxpayers and potential taxpayers. If TTB concludes that a gunsmith should have been filing returns and paying tax on sales of firearms assembled on behalf of consumers, TTB may enter a tax assessment for the amount of tax liability incurred. Penalties and interest may also be assessed for the failure to file a return or pay tax.

One significant exemption from tax is the 50-gun exemption. Section 4182(c), Title 26, U.S.C., provides an exemption from tax for any pistol, revolver or firearm that is manufactured, produced or imported by a person who manufactures, produces and imports less than an aggregate of 50 of such articles during the calendar year. Small custom gunsmiths who assemble or produce fewer than 50 firearms per year are exempted from tax liability and are not required to file returns or any other documentation with TTB.

TTB has information applicable to gunsmiths on their website at www.ttb.gov/applications/pdf/gunsmith-letter-revised.pdf (last visited Jul. 5, 2017). The gunsmith information indicates that two events must occur for tax liability to be incurred. First, there must be an act of manufacture. Second, the person who is responsible for the manufacture must sell the firearm or use it for business (as opposed to personal) use. TTB provides the following guidance on situations where a customer supplies parts or a complete firearm to a gunsmith for assembly or alteration:

In a situation where a customer supplies a firearm to a gunsmith for modification, the customer is usually considered to be the manufacturer for FAET purposes. The customer is considered to be the manufacturer because he directs what type of modification is to be done to the firearm, and he retains title to the firearm while it is being modified. Even though the gunsmith performs the physical modifications to the firearm, he would not usually be considered the manufacturer for FAET purposes in this situation.

An exception to the above example is when the gunsmith is selling the firearm to the customer, and related to that sale, the gunsmith performs alterations that constitute manufacture. The clearest example is where the gunsmith offers to customize a firearm to the customer’s specifications prior to sale. In such a case, the sale of the altered firearm results in tax liability. The tax liability cannot be avoided by merely breaking the transaction into two parts; i.e., selling the firearm and subsequently performing the manufacture.

If the manufacture is related to the sale of a firearm, the gunsmith is liable for tax, whether he performs the act of manufacture before or after the sale. In the latter instance, the TTB will blend the sale and the subsequent manufacture into one transaction. The substance of the transaction will control, not the form.

Where the gunsmith is not selling the firearm to the customer, or in circumstances where the sale and subsequent alterations are truly separate transactions, the customer is deemed to be the manufacturer. In these situations, tax liability, if any, would fall on the customer.

ANALYSIS

First, we assume that gunsmiths selling parts to consumers and then assembling them as complete firearms are not the manufacturers of the parts. This is important, because a manufacturer of parts selling a complete firearm in “knockdown” condition will incur tax liability on the sale. The regulatory definition of “manufacturer” makes this clear. Thus, a manufacturer who sells, to any person, a firearm kit that is complete as to all component parts must pay excise tax unless the sale is otherwise exempt. The remainder of our analysis will focus on gunsmiths who acquire firearms parts from a variety of vendors, offer them for sale to consumers, and then assemble the firearms in the configuration requested by the purchaser.

As indicated in the TTB gunsmith information package, tax will be incurred if assembly of the firearm is done in connection with the sale of the parts. The clearest example of assembly being done in connection with the sale would be where the gunsmith sells the parts to the consumer and bills the consumer for the cost of the parts and the cost of the labor for assembling the firearm. If the assembly takes place before the parts are delivered to the consumer, it is fairly clear that excise tax liability will be incurred by the gunsmith.

A different determination may be reached if a gunsmith sells parts to a consumer, the parts are invoiced and delivered to the consumer, and the consumer leaves the premises of the gunsmith with the parts. If the consumer then returns at a later date and requests the gunsmith to assemble the parts as a complete firearm, it might be possible to conclude the assembly was not done in connection with the sale. TTB’s analysis may depend on whether the two transactions are separately invoiced and on the amount of time between the sale of the parts and the assembly. Gunsmiths who conduct their business in this manner may wish to contact TTB for guidance.

CONCLUSION

Gunsmiths offering firearms for sale in unassembled form must ensure they understand the tax consequences of selling the parts and assembling the firearms on behalf of purchasers. If the assembly of a firearm is done in connection with the sale of the parts, excise tax liability may be incurred. Failure to file quarterly returns and pay tax may result in tax assessment, penalties and interest. Discussions with qualified counsel and/or obtaining written guidance from TTB may avoid these consequences.

We caution readers that tax determinations are complex and fact-dependent. This article addresses limited scenarios and the likely outcome based on our review of the law, regulations and experience in representing taxpayers before TTB. A single change in the facts may affect the conclusions TTB reaches about tax liability.

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The information contained in this article is for general informational and educational purposes only and is not intended to be construed or used as legal advice or as legal opinion. You should not rely or act on any information contained in this article without first seeking the advice of an attorney. Receipt of this article does not establish an attorney-client relationship.

ABOUT THE AUTHORS

Johanna Reeves is the founding partner of the law firm Reeves & Dola, LLP in Washington, DC (www.reevesdola.com). For more than 10 years she has dedicated her practice to advising and representing U.S. companies on compliance matters arising under the federal firearms laws and U.S. export controls. Since 2011, Johanna also has served as Executive Director for the FireArms Import/Export Roundtable (F.A.I.R.) Trade Group (http://fairtradegroup.org). In 2016, Johanna was appointed by the U.S. Department of State, Bureau of Political-Military Affairs to serve on the 2016-18 Defense Trade Advisory Group (DTAG).

Teresa Ficaretta is an expert on ATF regulations under the Gun Control Act, the National Firearms Act, the Arms Export Control Act and Federal explosives laws. Before joining Reeves & Dola in 2013, Teresa served as legal counsel to ATF for 26 years, followed by two years as Deputy Assistant Director in Enforcement Programs and Services. Teresa was elected partner to Reeves & Dola in January 2016.

Johanna and Teresa can be reached at 202-683-4200 or at info@reevesdola.com.

Removal of Firearms from the National Firearms Act

Many of our readers are very familiar with the stringent controls the National Firearms Act (NFA) imposes on certain firearms, including registration requirements, transfer taxes, restrictions on importation and the requirement for advance government approval before transfer. What may be less known or understood is how to remove a firearm from the purview of the NFA through modification or destruction. This article will address the required steps to remove covered firearms from the NFA.

I. A QUICK REVIEW OF THE CONTROLLING STATUTES

A. THE NATIONAL FIREARMS ACT

The NFA imposes strict controls only over those firearms identified in the statute. These include short-barrel shotguns, short-barrel rifles, machineguns, silencers, destructive devices and other concealable firearms known as “any other weapons.” We will discuss each of these types of firearms further below.

The statute imposes on manufacturers, importers and makers of controlled firearms marking requirements, registration requirements and the need to obtain advance ATF approval for all transfers of registered firearms. A transfer tax of $200 is imposed on each firearm transferred, but exceptions from the tax are available for transfers between qualified Federal Firearms Licensees (FFLs) as well as transfers to federal, state and local government agencies. The NFA authorizes importation of NFA firearms for limited purposes, such as for government agencies, scientific or research purposes, or testing or use as a model or sample by qualified FFLs.

B. THE GUN CONTROL ACT

For the purposes of this article, we focus on section 922(o) of the GCA, which makes it unlawful for any person to transfer or possess a machinegun. The only exceptions to this prohibition are transfers to or by, or possession by or under the authority of, the United States, a state or a local government agency. The machinegun prohibition does not apply to any lawful transfer or possession of a machinegun that was lawfully possessed before the effective date of the statute (May 19, 1986).

II. REMOVAL OF FIREARMS FROM THE NFA

A. SHORT-BARREL RIFLES AND SHORT-BARREL SHOTGUNS

An NFA-controlled rifle is a rifle having a barrel or barrels less than 16 inches in length. In order to be regulated as a short-barrel rifle, the weapon must have (1) a buttstock (indicating it is designed and intended to be fired from the shoulder); (2) a rifled bore; and (3) a barrel or barrels of less than 16 inches in length.

An NFA-controlled shotgun is a shotgun having a barrel or barrels less than 18 inches in length. To be regulated as a short-barrel shotgun, the weapon must have (1) a buttstock (indicating it is designed and intended to be fired from the shoulder); (2) a smooth bore; and (3) a barrel or barrels of less than 18 inches in length.

The process for removing a short-barrel rifle or short-barrel shotgun from the NFA does not require destruction of the receiver, as long as the firearm does not also shoot automatically. Unlike machineguns, which we will discuss in detail below, all that is required to remove a short-barrel rifle or short-barrel shotgun from the NFA is to remove and discard the barrel.

For an NFA-qualified manufacturer (a Type 07 or 10 FFL and Special (Occupational) Taxpayer), the barrel must be stored separately from the rest of the rifle parts. For any person other than an NFA-qualified manufacturer, however, it is not sufficient to only remove the barrel. As long as the barrel and the rest of the parts remain under the custody and control of the same person, that person will be in possession of a short-barrel rifle or a short-barrel shotgun1. Consequently, the barrel should either be destroyed or transferred to another person. A barrel of 16 inches or more may then be attached to the rifle, or, in the case of a shotgun, a barrel of 18 inches or more may be attached. This will result in both types of long guns being subject only to the GCA and not the NFA.

Another method of removing a short-barrel rifle or short-barrel shotgun from the NFA is to permanently attach a barrel extension to the short barrel. The barrel extension could be a muzzle brake, choke or an additional piece of barrel. In any case, ATF requires that the barrel extension be permanently affixed by gas or electric steel seam welding or the use of high temperature silver solder having a flow point of 1100 degrees Fahrenheit. If the barrel of a rifle or shotgun is permanently extended to at least 16 or 18 inches, respectively, the modified weapons are no longer subject to the NFA.

B. ANY OTHER WEAPON

The NFA defines “any other weapon” (AOW) to include a pistol or revolver having a barrel with a smooth bore designed or redesigned to fire a fixed shotgun shell. This language regulates a number of popular “shot pistols” designed to fire shotgun shells. Because the statutory definition requires this category of AOW to have a smooth bore, removal can be accomplished by removing and disposing of the smooth bore barrel. Again, disassembly is not sufficient for removal—the barrel must be destroyed or transferred to another person. Alternatively, ATF also recognizes removal through permanently installing a rifled sleeve chambered to accept a standard pistol cartridge into the smooth bore barrel. This results in the weapon having a rifled bore so that it no longer fits within the statutory definition.

C. DESTRUCTIVE DEVICES

The term “destructive device” is defined to include explosive, incendiary or poison gas bombs, grenades, rockets having a propellant charge of more than four ounces, missiles having an explosive or incendiary charge of more than one-quarter ounce or mines. The term also includes weapons that expel a projectile by the action of an explosive or other propellant, the barrel or barrels of which are more than one-half inch in diameter.

The clearest method of removing explosive and incendiary bombs, mines and grenades from the statute is to detonate them. This results in complete destruction of the device so it is no longer subject to NFA requirements. However, removal of a component of a destructive device may also result in the item no longer having the characteristics of a bomb, mine, grenade, etc. For example, ATF has advised industry members that removing the fuse or fuze from a grenade results in removal of the grenade from the destructive device classification. Industry members who wish to obtain more information about the removal of components so that destructive devices are no longer subject to the NFA should contact ATF for guidance.

Large caliber destructive devices that are not also machineguns may be removed from the NFA by removing and disposing of the barrel. The barrel must either be destroyed or transferred to a person who is not the registrant to effectively remove the device from the statute.

ATF has also recognized an alternative process to equal destruction of the barrel. This involves the following required actions:

Cut a hole in the barrel equal to the diameter of the bore on a 90-degree angle to the axis of the bore. The hole must be cut in the side of the barrel in the high pressure (chamber) area.

Weld the barrel, as altered in step (1) above to the weapon’s receiver.

Weld an obstruction into the barrel to prevent the introduction of a round of ammunition.

If all the above steps are taken, ATF considers the destructive device barrel to be destroyed so that the device is no longer subject to the NFA.

D. SILENCERS

The NFA’s definition of “firearm” includes any silencer, as defined in the GCA, 18 U.S.C. 921(a)(24). The GCA defines “firearm silencer” and “firearm muffler” to include “any combination of parts, designed or redesigned, and intended for use in assembling or fabricating a firearm silencer or silencer muffler, and any part intended only for use in such assembly or fabrication.” Accordingly, to remove a silencer from the NFA, every baffle, wipe, and other component must be melted, crushed or otherwise destroyed. ATF advises in the National Firearms Act Handbook, ATF e-Publication 5320.8. section 2.5.1 (available on ATF’s website at www.atf.gov) that a silencer may be destroyed by completely severing each component by means of a cutting torch that has a tip of sufficient size to displace at least one-quarter inch of material at each cut location. Outer tubes of a silencer may be destroyed by crushing them flat in lieu of cutting with a torch.

E. MACHINEGUNS

The term “machinegun” is defined in the NFA as “any weapon which shoots, is designed to shoot, or can be readily restored to shoot, automatically more than one shot, without manual reloading, by a single function of the trigger.” 26 U.S.C. 5845(b). The term includes the frame or receiver of a machinegun, as well as any part designed and intended solely and exclusively, or combination of parts designed and intended, for use in converting a weapon into a machinegun, as well as any combination of parts from which a machinegun can be assembled if such parts are in the possession or under the control of a person.

Accordingly, to remove the machinegun from the NFA and the provisions of 18 U.S.C. § 922(o), the frame or receiver must be completely destroyed. Crushing or melting the frame or receiver in a manner that renders the component totally unusable is acceptable. ATF’s Firearms and Ammunition Technology Division (FATD) advises the preferred method for destroying a machinegun receiver is to completely sever the receiver in specified locations by means of a cutting torch that displaces at least one-quarter inch of material at each cut location. See National Firearms Act Handbook at 2.5.1. ATF also has published rulings with diagrams specifying the locations for torch cuts for specific machineguns, such as FN FAL-type, Heckler & Koch G3-type and Sten-type machineguns. ATF Rul. 2003-2, ATF Rul. 2003-3 and ATF Rul. 2003-4 are available on ATF’s website. FATD will provide FFLs with cutting diagrams for other models of machineguns on request.

If saw cutting, ATF advises a machinegun receiver may be properly destroyed if certain portions of the saw-cut receiver are removed and properly discarded. FATD requests industry members wishing to destroy machineguns by saw cutting contact FATD for guidance on proper methods of destruction.

It is important to emphasize that machinegun receivers not destroyed in accordance with ATF-approved methods and standards may remain subject to the NFA and the provisions of 18 U.S.C. § 922(o).

III. DOCUMENTING REMOVAL OF A FIREARM FROM THE NFA

Alteration or destruction is only the first step in the process of removing a firearm from the NFA. Creating a record of the removal is essential to protect the registrant from charges of an unreported loss or unlawful transfer, as well as record keeping violations. One way to document the alteration or destruction is with photographs showing the configuration prior to destruction, the destruction process and the post-destruction scraps. The photographs should include the markings of the make, model, serial number and caliber or gauge. The photographs should be printed, and the person who took the photographs should legibly mark on the back of the photographs the date they were taken and the place where they were taken. The photographer should also sign the back of the photographs and indicate his or her job title within the organization.

The registrant should also create a certificate of destruction. The certificate should state that the person signing certifies that the following firearm(s) was destroyed on a specified date in accordance with guidelines issued by ATF. The certificate should include the make, model, serial number and caliber or gauge of the firearm, and it should be signed and dated by the person certifying destruction and the person’s title. The certificate should include a witness signature as well. The photographs taken during the destruction process should be attached to the certificate and all should be retained as part of the FFL’s permanent records. If the registrant is not a FFL, the record of destruction should be retained in the event of questions from ATF investigators.

The last step in documenting the removal of a firearm from the NFA is to make a disposition entry in the FFL’s acquisition and disposition records, required under the GCA. The entry would state “destruction” or “removal from the NFA,” depending on whether the firearm was completely destroyed or was altered, as in the case of a short-barrel rifle that has had a barrel extension added.

If the firearm was altered and continues to be subject to the requirements of the GCA, then the requirements of ATF Rul. 2016-3 apply. This ruling addresses the record keeping requirements when a licensed manufacturer makes changes to the model, type, caliber, size and/or gauge of a frame, receiver or assembly of a firearm. The ruling requires that the firearm remain logged into the acquisition record until the alterations to the firearm are complete. At the point the alterations are complete, the licensed manufacturer must then log the firearm out of the acquisition and disposition record as a disposition to itself using its own licensed name and license number. The date of the disposition is the date of the alteration of the firearm. Then the licensed manufacturer must make a new entry in the acquisition record to show the new firearm information on a separate line of the record. The manufacturer would record the acquisition as an acquisition from itself on the same date as the date of the alteration of the firearm.

The procedures of ATF Rul. 2016-3 would similarly apply to alterations to short-barrel shotguns and destructive devices that are removed from the NFA and then reassembled. Of course, remanufacture of a destructive device or other “firearm” as defined in the NFA must be reported on a Form 2, in the case of a qualified FFL, or authorized in advance through submission of Form 1, in the case of a non-licensee.

The final step is to notify ATF that a registered NFA firearm has been removed from the controls of the statute. This can be accomplished by sending a letter to the Chief of the National Firearms Act Branch, 244 Needy Road, Martinsburg, WV, 25405. The letter may also be sent via e-mail to NFA@atf.gov. The letter should include a copy of the registration form for the firearm or firearms in question and should advise ATF that the firearm has been removed from the NFA. The letter should describe the steps taken to remove the firearms from the NFA and the date of destruction or alteration. The letter should request that the Chief of the NFA Branch annotate the National Firearms Registration and Transfer Record to indicate the firearm has been removed from the statute.

IV. CONCLUSION

There are a number of reasons for which FFLs and other persons may wish to remove firearms from the controls of the NFA. If firearms are outside the United States, for example, removal may make it possible to lawfully import the firearms into the United States as part of a personal collection or for commercial sale. Licensed manufacturers may wish to remove registered firearms from the NFA if the firearms do not meet manufacturing standards for commercial sale. Whatever the reason, there are recognized procedures for removal and documenting the removal that should be followed to avoid inadvertent violations of the law and problems during ATF compliance inspections.

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The information contained in this article is for general informational and educational purposes only and is not intended to be construed or used as legal advice or as legal opinion. You should not rely or act on any information contained in this article without first seeking the advice of an attorney. Receipt of this article does not establish an attorney-client relationship.

ABOUT THE AUTHORS

Johanna Reeves is the founding partner of the law firm Reeves & Dola, LLP in Washington, D.C. (www.reevesdola.com). For more than 10 years she has dedicated her practice to advising and representing U.S. companies on compliance matters arising under the federal firearms laws and U.S. export controls. Since 2011, Johanna also has served as Executive Director for the FireArms Import/Export Roundtable (F.A.I.R.) Trade Group (http://fairtradegroup.org). In 2016, Johanna was appointed by the U.S. Department of State, Bureau of Political-Military Affairs to serve on the 2016-18 Defense Trade Advisory Group (DTAG).

Teresa Ficaretta is an expert on ATF regulations under the Gun Control Act, the National Firearms Act, the Arms Export Control Act and Federal explosives laws. Before joining Reeves & Dola in 2013, Teresa served as legal counsel to ATF for 26 years, followed by two years as Deputy Assistant Director in Enforcement Programs and Services. Teresa was elected partner to Reeves & Dola in January 2016.

Johanna and Teresa can be reached at 202-683-4200.

DEWAT Firearms and How They Are Regulated Under Federal Law

We regularly receive inquiries from firearms collectors who have acquired a “DEWAT” and ask us for advice on how to register the firearm under the National Firearms Act (NFA). “DEWAT” is an acronym for “deactivated war trophy” and generally refers to firearms that WWII-era servicemen bring back to the United States as war trophies or souvenirs. There appears to be confusion in the firearms community on the significance of a DEWAT classification and whether registration documents with this label mean a particular firearm is lawfully registered and transferable under the NFA.

This article addresses the original DEWAT Program established by the United States in 1945, implementation of the program by the Internal Revenue Service (IRS) and how amendments to the statute in 1968 affect the registration status of firearms registered under the program.

I. Background

A. Statutory Background and History

Congress enacted the NFA, 26 U.S.C. Chapter 53, in 1934 to address firearms violence involving machineguns, short barrel shotguns, short barrel rifles, silencers and other concealable weapons. The NFA requires registration of all such firearms, approval of firearm transfers in advance and payment of a $200 transfer tax for each firearm transferred. As enacted in 1934, the statute allowed possessors of NFA firearms to register their firearms by completing a form and submitting it without tax as long as the submission was within 60 days of the date of enactment of the statute.¹

The NFA also included exemptions from the $200 transfer tax for any firearm which was “unserviceable” and which was transferred as a “curiosity or ornament.” The term “unserviceable” was not defined in the statute until 1968, as discussed below.

Significantly, the statute as enacted in 1934 defined the term “machinegun” as follows:

Machinegun—The term “machine gun” means any weapon which shoots, or is designed to shoot, automatically or semi-automatically, more than one shot, without manual reloading, by a single function of the trigger.

Thus, as enacted, the NFA did not regulate receivers for machineguns as “machineguns.”

In 1968, the Gun Control Act amended the NFA in a number of significant ways. First, the definition of “machinegun” was amended to specifically include the frame or receiver of such a weapon. A new section, 5841(d), was added providing that a person shown by the government’s NFA records as possessing a firearm on the effective date of enactment (October 22, 1968) is considered to have registered the firearm under the statute. This provision ensured that any person who, prior to October 22, 1968, submitted a DEWAT registration document (more on this below) would be considered as lawfully registering the firearm under the NFA. It is important to point out that starting in 1968, only manufacturers, importers and makers of NFA firearms are permitted to register the NFA firearms they manufacture, import or make. Mere possessors of firearms are not allowed to register.

Another amendment made in 1968 was the addition of the term “unserviceable firearm,” defined as a firearm incapable of discharging a shot by means of an explosive and incapable of being readily restored to a firing condition. The NFA was amended to provide that an unserviceable firearm may be transferred without payment of transfer tax. Provisions relating to “unserviceable firearms” remain in the NFA in 26 U.S.C. §§5845 and 5852(e).

Section 207(b) of the Gun Control Act of 1968 required the Secretary of the Treasury to establish an amnesty period allowing any person possessing a firearm subject to the NFA to register it during the 30-day amnesty program. This amnesty period was enacted as a response to a 1968 Supreme Court decision, United States v. Haynes, which declared portions of the statute unconstitutional. The Haynes decision held that the provisions of the NFA requiring mere possessors to register firearms violated the constitutional right against self-incrimination. The Court reasoned that by requiring such individuals to submit a form to the IRS admitting possession of an unregistered firearm provided the government with information that could be used to prosecute them. Congress responded to the Haynes decision by adding a provision to the NFA prohibiting the government’s use of information from registration or transfer applications as evidence in a criminal proceeding and by requiring the 30-day amnesty period to allow mere possessors to register firearms without penalty.

The IRS implemented the amnesty provisions of Section 207(b) and allowed registration of firearms by possessors for an initial 30-day period from November 1, 1968 to December 1, 1968. Firearms were registered during the amnesty period on IRS Form 4467. The agency allowed persons to register firearms beyond the December 1, 1968, cutoff date if they provided evidence they were out of the country during the 30-day period and unaware of the registration period or unable to register during the period. The IRS registered over 60,000 firearms during the 1968 amnesty period.

Finally, no discussion of machineguns is complete without a reference to 18 U.S.C. §922(o). This provision of the Gun Control Act was added by the Firearms Owners Protection Act of 1986 and generally prohibits the transfer or possession of a machinegun. Exceptions are provided for machineguns lawfully possessed prior to May 19, 1986 (the date of enactment), and for transfers to or by, or possession by or under, the authority of a federal, state or local government agency.

B. Establishment of the DEWAT Program

The Deactivated War Trophy Program (hereinafter “DEWAT Program”) was established in 1945 as a means of allowing returning servicemen to retain war trophies and affording the opportunity to effect NFA registration and control over subsequent transfers of properly deactivated firearms. The earliest evidence of the DEWAT Program the authors were able to locate is in War Department Circular 217, dated June 1, 1944. Section VIII of the circular indicates the purpose of the DEWAT Program was to improve the morale of military personnel by allowing them to retain war trophies. The circular allows importation of “small items of enemy equipment” except name plates removed from captured equipment, items which contain explosives and other items useful to the military. The circular requires that servicemen returning to the U.S. with war trophies in their possession have a certificate signed by a superior officer stating the bearer is authorized by the theater commander to retain as personal property articles listed on the certificate. The circular also indicates Customs officials were directed to accept a copy of the certificate to allow lawful importation of the war trophies.

Documents from the IRS issued in 1946 also indicate recognition of the DEWATS program. The IRS documents indicate that War Department Circular 217 was subsequently revoked when domestic law enforcement officials expressed concern about the policy and the threat allegedly deactivated machineguns presented to police. The 1946 documents indicate that even after the War Department Circular was revoked, numbers of firearms were
¹ In SAR Volume 21, Number 4, we published an article titled, “Short Barrel Rifles and Short Barrel Shotguns: Understanding Federal Regulations.” The article misstated that persons in possession of NFA firearms on the date the statute was enacted were required to pay a $200 registration tax. Indeed, only transfers of NFA firearms were subject to the $200 tax, as possessors who registered firearms with the IRS were not required to pay a tax. We apologize to readers for this erroneous statement.

brought into the U.S. notwithstanding revocation of the policy. The IRS document indicates the agency continued to work to secure registration of the “illegally imported captured enemy equipment” and to have such firearms rendered permanently inoperable to keep them out of the hands of “gangsters.”

C. Evolution of the DEWAT Program–IRS Rulings

Three documents issued by the IRS in the 1950s demonstrate the evolution of the DEWAT Program.

(1) Rev. Rul. 55-590

Rev. Rul. 55-590 held that firearms “in the war trophy class” that are deactivated under the supervision of an IRS investigator are “harmless ordnance curios” not regulated as “firearms” under the NFA. The ruling noted that of the many thousands of war trophy firearms registered under the program, many were rendered unserviceable by steel welding the breech end of the barrel closed and steel welding the barrel to the frame. Recall that the term “unserviceable” would not be defined in the NFA until 1968, leaving the IRS free to interpret the term as the agency saw fit. The ruling notes that these actions rendered the weapons harmless, did not destroy their trophy value and permitted subsequent tax-free transfer. The ruling also notes that such weapons, although not regulated as “firearms,” were required to be “notified” on Form 5 for each transfer. This makes no sense to the authors, because if the items are not “firearms,” then why was there a transfer application? In any event, Rev. Rul. 55-590 clarified the requirements for DEWAT firearms and held that if the items were registered and deactivated under the supervision of an IRS investigator, they are not “firearms” under the purview of the NFA.

Rev. Rul. 55-590 also states that any person possessing a “contraband firearm” who wishes to have the firearm transformed into a DEWAT should contact the nearest IRS office for the purpose of executing an application for registration on Form 1. The ruling states that after deactivation is complete, the word “DEWAT” will be added to the Form 1 description for the firearm, and the notation “removed from classification of a firearm by steel welding in the prescribed manner on (date)” will also be added.

(2) Rev. Rul. 57-227

This IRS ruling emphasized that only those firearms deactivated in the manner specified in Rev. Rul. 55-590 (under the supervision of an IRS investigator) are classified as a DEWAT not regulated under the NFA. The ruling states that all other firearms are regulated under the NFA notwithstanding their operating condition. The ruling notes that such firearms may be classified as “unserviceable firearms,” which exempts them only from transfer tax and not from the registration and transfer requirements of the statute.

(3) Rev. Proc. 58-8

This Revenue Procedure announced the termination of the DEWAT Program. On and after July 1, 1958, only a natural person who lawfully possesses a firearm would be allowed to transform the firearm into a DEWAT. The procedure further specified that the transformation of the firearm into a DEWAT would be allowed only by meeting the following conditions: (1) the firearm was registered under the NFA; (2) the firearm was made in accordance with the NFA; (3) the firearm was transferred in accordance with the NFA; or (4) the firearm was imported in accordance with the NFA. The procedure further states that after deactivation the IRS investigator who supervises the deactivation must endorse the Form 1, Form 4, Form 5 or Form 6, as the case may be, held by the owner. The procedure holds that such a DEWAT is not a “firearm” under the NFA, and subsequent transfers of the firearm need not be approved by the IRS. Finally, the procedure held that any unregistered firearm subject to the NFA will be considered contraband subject to forfeiture to the United States.

II. How are DEWAT Firearms Regulated?

The history outlined above indicates the twists and turns taken by the DEWAT program and raises a number of questions about firearms that were ostensibly registered as “DEWAT” from 1945-1958. We list those questions and our answers below. Please note that our answers are neither intended to be, and should not be, construed as legal advice nor do they form an attorney-client relationship.

1. Are machineguns registered as DEWAT on a Form 1, Form 4, Form 5 or Form 6 lawfully registered under the NFA?

Machineguns lawfully registered under the DEWAT program from 1945-1958 that are accompanied by Forms 1, 4, 5 or 6 indicating inspection by an IRS investigator are considered properly registered to the person whose name is listed as the registrant on such form under the NFA. This is because of the language of 26 U.S.C. §5841(d) providing that any person shown as possessing a firearm under NFA records in existence on October 22, 1968, is considered to have registered the firearm.

If the DEWAT was transferred after registration (without a transfer application, because the IRS did not consider DEWAT firearms to be “firearms”) to any other person, then ATF considers it to be lawfully registered only if the machinegun was again registered under the 1968 amnesty program. This is because the amendment of the definition of “machinegun” in 1968 to include the frame or receiver of such a firearm made it clear that even deactivated DEWAT firearms are included within the NFA and must be registered. The transferee would not be protected by the language of §5841(d) because NFA records did not show that person as possessing the firearm on October 22, 1968. Unfortunately, ATF will recognize the validity of a DEWAT registration only if the firearm remains in the hands of the original registrant.

Assuming the DEWAT was registered during the 1968 amnesty, then all transfers must have been approved in advance by ATF, and the current possessor must have registration documents indicating the machinegun is registered to him or her.

2. What about firearms other than machineguns, such as short-barrel rifles? If lawfully registered under the DEWAT program, are DEWAT rifles registered under the NFA?

All NFA firearms, including short-barrel rifles, properly deactivated and registered under the DEWAT program are considered properly registered to the person whose name is listed as the registrant on the registration form. However, if the short barrel rifle was transferred to another person, it is not considered registered unless the DEWAT was again registered during the 1968 amnesty program. Even though there was no change in the definition of “short barrel rifle” in the NFA, ATF will not recognize the registration unless the rifle remains in the hands of the original DEWAT registrant.

3. Assuming a DEWAT machinegun is lawfully registered to the possessor, is it considered a “grandfathered” machinegun so it is not subject to 18 U.S.C. §922(o)?

Yes.

4. May lawfully registered DEWAT firearms be transferred to another person?

Yes. The firearms may be transferred free of tax as “unserviceable firearms” through submission of ATF Form 5. All transfers must be approved by ATF in advance.

5. If an individual has a DEWAT firearm lawfully registered to him, may the firearm be reactivated?

Yes. ATF requires that a Form 1 application be submitted prior to reactivation of a DEWAT firearm. ATF will also permit a qualified manufacturer to reactivate a DEWAT and report its manufacture on Form 2. This would require a Form 4 tax-paid transfer from the manufacturer to the owner of the reactivated firearm. If the firearm is a machinegun, ATF considers it to be grandfathered so it is not subject to the restrictions of 18 U.S.C. §922(o).

III. Conclusion

Firearms collectors given the opportunity to purchase an alleged DEWAT firearm should proceed with caution. Even if registration documents appear to match the firearm, ATF may or may not recognize the registration documents as valid. If the alleged DEWAT is no longer in the hands of the original registrant and was not again registered during the 1968 amnesty period, the firearm could be contraband. If so, possessing the firearm could place the possessor in violation of the law. Individuals considering purchase of DEWAT firearms would be well advised to contact ATF’s National Firearms Act Branch for guidance or discuss the transaction with qualified counsel.

The information contained in this article is for general informational and educational purposes only and is not intended to be construed or used as legal advice or as legal opinion. You should not rely or act on any information contained in this article without first seeking the advice of an attorney. Receipt of this article does not establish an attorney-client relationship.?

About the Authors

Johanna Reeves is the founding partner of the law firm Reeves & Dola, LLP in Washington, DC (www.reevesdola.com). For more than 10 years she has dedicated her practice to advising and representing U.S. companies on compliance matters arising under the federal firearms laws and U.S. export controls. Since 2011, Johanna also has served as Executive Director for the FireArms Import/Export Roundtable (F.A.I.R.) Trade Group (http://fairtradegroup.org). In 2016, Johanna was appointed by the U.S. Department of State, Bureau of Political-Military Affairs to serve on the 2016-18 Defense Trade Advisory Group (DTAG).

Teresa Ficaretta is an expert on ATF regulations under the Gun Control Act, the National Firearms Act, the Arms Export Control Act and Federal explosives laws. Before joining Reeves & Dola in 2013, Teresa served as legal counsel to ATF for 26 years, followed by two years as Deputy Assistant Director in Enforcement Programs and Services. Teresa was elected partner to Reeves & Dola in January 2016.

Both Johanna and Teresa can be reached at 202-683-4200, or at info@reevesdola.com.

GAO Rings the Alarm Bell on ATF’s Adherence to Restrictions on Information Collection

Individuals who purchase firearms from federal firearms licensees (FFLs) are often anxious over the potential release of personal information and firearm purchase information recorded on certain forms the FFL is required to keep. What happens to the personal information and firearms information on these government forms? Does the government put the information about purchasers and firearms into a centralized database or system of registration?

Last year, the Government Accountability Office (GAO) issued a report on the Bureau of Alcohol, Tobacco, Firearms and Explosives’ (ATF’s) data restrictions titled, “FIREARMS DATA—ATF Did Not Always Comply with the Appropriations Act Restriction and Should Better Adhere to Policies.”

This article will examine the checks and balances Congress put in place to prevent the ATF from establishing a firearm registration system with centralized purchaser information. We will then review the effectiveness of these checks and balances as reported by the GAO in its June 2016 report to Congress.

I. LEGAL BACKGROUND

Under the Gun Control Act of 1968 (GCA), FFLs must create and maintain records of firearms transactions and make these records available to the ATF for inspection which can be warrantless under certain circumstances. The required records include the Form 4473, which contains the buyer’s personal information, such as name, residence address, date of birth, race and ethnicity, answers to questions focused on the buyer’s eligibility to possess a firearm, as well as the make, model and serial number of the firearm purchased. Additionally, when an FFL sells more than one handgun (pistol or revolver) to a non-licensee, either in the same transaction or within five consecutive business days, the FFL must submit the Report of Multiple Sale or Other Disposition to the ATF and designated state police or local law enforcement. The multiple sale report form also contains personal information about the buyer as well as the make, model and serial number of the particular firearms purchases.

To carry out its responsibilities under the GCA, the ATF maintains computerized information on firearms transactions derived from the Form 4473 and multiple sales reports. Because the information includes a buyer’s personal information and the make, model and serial number of firearms purchased, Congress has attempted to balance the ATF’s responsibilities under the GCA with the privacy rights of firearms owners. One way Congress has influenced the ATF’s ability to consolidate or centralize FFL records has been through restricting the agency’s use of appropriated funds for this activity. This restriction has been included in each of the ATF’s appropriation laws from 1979-2011. It became permanent through enactment of the Consolidated and Further Continuing Appropriations Act of 2012.

Another control on the ATF’s ability to consolidate firearms information is in the GCA itself, which Congress added when it enacted the Firearms Owners Protection Act of 1986. Section 926(a) (18 U.S.C. § 926(a)) prohibits the ATF from issuing rules or regulations that require FFL records “be recorded at or transferred to a facility owned, managed, or controlled” by the federal, state or local government. Section 926(a) also expressly prohibits the establishment of any system of registration of firearms, firearms owners or firearms transactions.

Although the above provisions appear to prohibit the ATF from centralizing all FFL records, both Congress and the federal courts have recognized important exceptions. For example, information required or incidental to the ATF carrying out its mission to administer and enforce the federal firearms laws is exempt from data restrictions.

The ATF is also authorized to collect, consolidate and centralize data that Congress has expressly authorized by statute. This includes:

• Multiple Sale Reports. FFLs are required by statute to provide a multiple sale report to the ATF whenever the FFL sells within any five consecutive business days, two or more pistols or revolvers to an unlicensed person. The multiple sale reports go to the ATF’s National Tracing Center (NTC) and are used as leads to detect firearms trafficking. The ATF began computerizing multiple sale reports in 1995, but because this is a statutory provision enacted by Congress, the ATF’s centralization and computerization of information on the multiple sale reports do not violate the data restrictions outlined in this article. However, an important part of the program is the ATF’s policy of deleting firearms purchaser names from the multiple sale database two years after the date of sale if the firearms listed on the form are not connected to a firearms trace.

• Out of Business Records. FFLs who discontinue business are required by statute to submit to the ATF all required records, including Form 4473, within 30 days after discontinuing business. The records are sent to the NTC and are imaged for use in tracing crime guns recovered by law enforcement agencies. This is another consolidation of records specifically authorized by Congress which does not violate the data restrictions. In order to avoid any appearance that the agency is using out-of-business records to create a system of gun registration, the ATF images these records as non-searchable images, meaning they cannot be searched through character recognition using text queries. Information on particular firearms or purchasers will only be accessed if the record is required for a firearm trace.

• Demand Letters. As we discussed in our previous “Legally Armed” article titled, “ATF’s Demand Letter Program – Alive and Well Since 2000” (Vol. 21, No. 2), the ATF has the authority under the GCA to require FFLs to report firearms record information to the ATF when requested to do so by letter. So-called “demand letters” may be issued by the ATF field or Headquarters personnel. Demand letters may require information on particular types of firearms, such as used guns, and it may be limited to a particular timeframe. The most recent demand letter program the ATF adopted was in 2011 requiring dealers located in the border states of Arizona, California, New Mexico and Texas to submit a report to the ATF on the sale of two or more semiautomatic rifles having certain specified characteristics. Data from this program, called “Demand Letter 3,” is included in the multiple sale database. Litigation challenging the ATF’s demand letters has failed, with federal courts consistently holding that the GCA does not prohibit the ATF from requiring that FFL records be sent to the agency. Federal court decisions held that the prohibitions on centralizing and consolidating FFL records do not prohibit the ATF from collecting this information.

• A2K Program. Under the GCA, FFLs must respond to an ATF firearms trace request within 24 hours of receiving the request. When the ATF receives a trace request from a law enforcement agency, the ATF contacts the manufacturer, distributor(s) and retail FFLs in the chain of distribution to determine the first retail purchaser of record. The ATF contacts FFLs by phone, fax or e-mail. This process can be time-consuming for FFLs, particularly large manufacturers and distributors who deal in a high-volume of firearms. Consequently, the ATF created the A2K program in 1995 at the request of industry members as a voluntary program providing more efficient responses to trace requests. The participating industry member uploads electronic firearms disposition records (including Form 4473) onto a server that the ATF owns and maintains. The server is located at the facility of the industry member and provides a secure web interface through which authorized ATF personnel can search disposition records for firearms that are the subject of a trace request. Records are searchable by firearm serial number only, and if a record for a firearm is located, the ATF can then request the Form 4473 for that particular firearm transaction. A2K dramatically reduces the cost of firearms tracing for the 35 industry members currently using A2K. The A2K program does not violate the data restrictions on centralizing and consolidating FFL records because the records remain the property of the FFL, the server is on the FFL’s facility, and the ATF accesses records only if a firearm requires tracing.

• Firearms Recovery Notification Program (FRNP). The FRNP was established in 1991 as a criminal investigative service to ATF agents. The program creates and maintains a database of firearms not yet recovered by law enforcement agencies but suspected of being involved in criminal activity. ATF agents submit information into this database to flag a particular firearm so if it is recovered and traced at a later date the requesting agent will be notified. For example, an ATF agent may recover a firearm during a law enforcement operation and discover it was part of a multiple sale with another firearm. The ATF agent may then enter the other firearm into FRNP because of its association with the recovered firearm and its possible connection to trafficking. If the firearm is later recovered, this evidence could be used to support a firearms trafficking case. Information in FRNP does not violate the restrictions on centralizing and consolidating FFL records because it is incident to carrying out one of the primary purposes of the GCA, to investigate and deter violent crimes committed with firearms.

II. GAO REPORT OF JUNE 2016

On August 1, 2016, the GAO published its report on the ATF’s data restrictions titled, “FIREARMS DATA—ATF Did Not Always Comply with the Appropriations Act Restriction and Should Better Adhere to Policies.” The report, dated June 30, 2016, is available on the GAO website at www.gao.gov/products/GAO-16-552.

The GAO identified 16 ATF databases with retail firearms purchaser data and selected the programs outlined above for an in-depth review of whether the ATF’s data collection and maintenance practices comply with Congress-imposed data restrictions and the agency’s own internal policies. We discuss the GAO
findings in turn.

1. GAO Conclusion: ATF Failed to Delete Purchaser Names from Multiple Sale Reports After Two Years

GAO’s review of the multiple sales database revealed that the ATF was not vigilant about deleting purchaser names two years after the date of the reports, assuming the firearm has not been connected to a trace. GAO auditors determined that 10,041 names that should have been deleted remained in the database until May 2016. ATF officials explained to auditors that the system design limitations, which require analysts to write complex queries to locate purchaser names in the database, are not always successful in identifying and removing names. The GAO report also noted that auditors determined that some multiple sale records entered in 1997 were not deleted until November 2009, about 10 years after the required two-year timeframe. The ATF’s explanation for this delay was that deleting a large number of records at once adversely affects the firearms tracing system because it slows the system response time or shuts it down entirely. GAO did not find this explanation credible, noting that the agency’s deletion log indicated the ATF is able to delete almost 100,000 records per day without adversely affecting the system. Accordingly, the GAO concluded that system constraints do not seem to be the reason for the delayed deletion of purchaser names.

2. GAO Conclusion: Out-Of-Business Records System Complies with Data Restrictions

The GAO Report states that out-of-business records are integral to the firearms tracing process. This is because in 35%-38% of firearms trace requests, at least one entity in the chain of distribution has gone out of business. Accordingly, the GAO concluded that the ATF must be able to access out-of-business records to trace the firearm. The report indicates that since 2006, the ATF has scanned out-of-business records as TIFF (Tagged Image File Format) images and stores them in the Out-of-Business Records Imaging System (OBRIS). As stated above, the records are images that cannot be searched with text queries. When the ATF receives electronic records from an FFL going out of business, it converts the files to non-searchable records consistent with paper OBRIS records.

ATF policies require OBRIS records be indexed by FFL number and chronologically by month and year. When there is a firearm trace, an NTC analyst first locates the FFL in the license number index. Once the FFL records are located, the analyst then manually searches the records to narrow the scope by date to records more likely to contain the firearm being traced. The NTC analyst then manually skims through each record in the group until locating the relevant information. It may be necessary to search thousands of pages of records to find the record matching the trace request. This resource-intensive process ensures that no system of registration has been created.

GAO auditors concluded that OBRIS complies with the appropriations act restrictions and adheres to all ATF data policies.

3. GAO Conclusion: The A2K Program for Out-of-Business FFLs Did Not Comply with Data Restrictions

The GAO Report found that beginning in 2000, the ATF maintained A2K disposition data from out-of-business FFLs on a single partitioned server within the NTC. The report noted that maintaining disposition records in this manner violated the appropriations restriction because the agency was centralizing or consolidating FFL records in a manner that was not authorized by the GCA. The report noted that the ATF should have treated A2K participants who went out of business in the same manner as other FFLs, which would require deleting the data on the server and obtaining out-of-business records directly from the FFL.

The GAO Report stated that maintaining the A2K disposition records on an ATF server located at the NTC clearly violated the appropriations restriction. By maintaining the out-of-business disposition information on a server, it could be accessed in the same manner as in-business A2K participants. The report states that, although records were only retrievable by an exact serial number search, in accordance with ATF A2K policy, it would have been technically possible for the ATF to reconfigure the server to allow records to be queried by any field, including purchaser name. This ability brings the data much closer to a system of registration of firearms purchasers in violation of the letter and spirit of the appropriations restriction. When auditors discovered this violation, the ATF began a process of transferring data from the out-of-business A2K records into the out-of-business system as digital images. The ATF deleted the information from the server in March 2016.

The GAO Report recommended that information provided to A2K participants clearly specifies
how out-of-business records should be provided to the agency so that future violations of the appropriations restriction do not occur.

4. GAO Conclusion: FRNP Complies with Restrictions, but One Regional Program Fails

The GAO concluded that FRNP generally complies with the appropriations restriction and adheres to ATF internal policies on retention of firearms purchaser information. The GAO found that gathering information on firearms suspected of a connection to a crime is limited in scope to carry out the ATF’s criminal enforcement mission. The ATF established criteria for adding particular firearms to the FRNP database, which include: (1) large quantities of firearms purchased by an individual; (2) firearms suspected in trafficking but not stolen from an FFL; (3) FFLs suspected of conducting firearms transactions without proper documentation; (4) firearms purchased by suspected straw purchasers, and (5) other—a category that the submitting agent must explain on the form. GAO auditors found that the vast majority of firearms were entered in accordance with the foregoing criteria.

However, auditors identified an ATF regional program conducted from 2007-2009, the “Southwest Border Secondary Market Weapons of Choice Program,” (SWBWOC) did not comply with data restrictions. This is because none of the firearms entered into the database was suspected of being involved in criminal activity associated with an ATF criminal investigation. According to ATF officials, the SWBWOC Program was in place in the ATF’s four southwest border field divisions to more effectively identify the purchasers of used firearms in Mexico. During routine regulatory enforcement inspections of FFLs in these states, ATF investigators recorded information about specified “weapons of choice” in the FFLs’ inventories or sold by the FFLs during the inspection period. The ATF stated that the information recorded was limited to the serial number and description of the firearm and did not include any purchaser information. The firearms information was then entered into FRNP for all of the specified weapons identified during the inspection. If the firearm was subsequently recovered by law enforcement and submitted for a trace, the ATF would identify this record in the system before contacting the manufacturer. The ATF would then be able to quickly identify the FFL that previously had the firearm in inventory.

ATF officials advised GAO that the program was cancelled in October 2009, following the ATF’s legal review of the process by which the information was acquired. However, although the information in FRNP was labeled as “inactive,” it was not deleted. ATF officials notified GAO that the 855 records from the SWBWOC program were deleted from FRNP
in March 2016.

III. CONCLUSIONS

The GAO Report on firearms data restrictions provides firearms owners with good news and bad news. The good news is that for most of the firearms and purchaser data the agency collects, the ATF has not created a system of firearms registration or a database of firearms owners. The bad news is that the ATF has problems complying with some of the data retention periods for purchaser information from multiple sales reports. This confirms the concern of some handgun purchasers that buying two or more handguns from an FFL will result in their names being in a government database forever. In addition, the NTC needs to clarify to A2K participants that the agency will not maintain firearms disposition information after the participants go out of business and then needs to make sure it follows through on that assurance.

Finally, ATF field division personnel should receive regular, mandatory training on data restrictions and the general prohibition on the creation of new databases with purchaser and firearms information. It is important for every ATF employee to understand the sensitivity of this information and the critical responsibility of the agency, as an arm of the federal government, to exercise its authority and power to access to such information fairly, responsibly and in line with the United States Constitution.

The information contained in this article is for general informational and educational purposes only and is not intended to be construed or used as legal advice or as legal opinion. You should not rely or act on any information contained in this article without first seeking the advice of an attorney. Receipt of this article does not establish an attorney-client relationship.

About the authors

Johanna Reeves is the founding partner of the law firm Reeves & Dola, LLP in Washington, DC (www.reevesdola.com). For more than 10 years she has dedicated her practice to advising and representing U.S. companies on compliance matters arising under the federal firearms laws and U.S. export controls. Since 2011, Johanna also has served as Executive Director for the FireArms Import/Export Roundtable (F.A.I.R.) Trade Group (http://fairtradegroup.org). In 2016, Johanna was appointed by the U.S. Department of State, Bureau of Political-Military Affairs to serve on the 2016-18 Defense Trade Advisory Group (DTAG).

Teresa Ficaretta is an expert on ATF regulations under the Gun Control Act, the National Firearms Act, the Arms Export Control Act and federal explosives laws. Before joining Reeves & Dola in 2013, Teresa served as legal counsel to the ATF for 26 years, followed by two years as Deputy Assistant Director in Enforcement Programs and Services. Teresa was elected partner to Reeves & Dola in January 2016.

Both Johanna and Teresa can be reached at 202-683-4200 or at info@reevesdola.com.