Should I Start a Trust or Corporate Entity Given ATF’s Proposal, ATF 41P?

By Joshua Prince, Esq.

Many individuals are inquiring of whether they should start a trust or corporation, or if already having started such a fictitious entity, submit additional making or transfer applications, given the Bureau of Alcohol, Tobacco, Firearms, and Explosives’ (ATF) recent proposal, ATF 41P, to require CLEO signatures for all fictitious entities, as well as institution of a new role, “Responsible Person.” While ATF 41P is only a proposal and has not yet been enacted, and therefore the final language of any new regulation is yet unknown, I will attempt to explain my rationale that you should submit any making or transfer applications NOW.

For purposes of the discussion below, we will assume that ATF 41P is enacted in its current form; however, one must note that ATF 41P leaves much to be determined and is not clear in may respects. For information on ATF 41P, see my original article on the devastating effects of ATF 41P, Attorney Tom Odom’s articles on the draft proposal, procedural issues with the draft proposal, and a summary of the draft proposal, and our combined article National Firearms Act Day of Reckoning, Tuesday, September 3, 2013.

The first questions everyone wants to know is whether this regulation will remove trusts as legal entities to own NFA firearms. The answer is No. It cannot, because the definition of a person was implemented by the Congress and cannot be modified by an administrative agency. 26 U.S.C. § 7701 provides, “(1) Person.–The term ‘person’ shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.” (emphasis added). Therefore, trusts and other legal fictitious entities will remain to be valid entities for purposes of owning, possessing and holding NFA firearms.

The next question everyone is asking is whether ATF 41P will require existing fictitious entities (partnerships, trusts, corporations, limited liability companies…etc) to submit documentation regarding their previously approved transfers. While ATF 41P does not specifically address this issue, it is important to note that the proposal in written in relation to applications submitted after the proposed rule becomes a regulation. As an example, the Proposal reads, “The proposed changes include … photographs and fingerprints, as well as law enforcement certificate, when the legal entity files an application to make an NFA firearm or is listed as the transferee on an application to transfer an NFA firearm.” (emphasis added). Accordingly, it would not apply to existing entities, which have already had NFA firearms approved to that entity. This was also confirmed by Attorney Robert Merting during his call with ATF Attorney Brenda Friend (the same individual all comments are to be directed to). He states, “Ms. Friend specifically confirmed that the rule would not be retroactive and those transactions already approved will stand.” (emphasis in original)

The follow up question is then whether pending applications would be returned, if the regulation is enacted during the pendency of those applications. During the NSSF/FAIR’s 12th Annual Import Export Conference in Washington, D.C. on August 6-7, 2013, an individual inquired of if a new regulation was implemented, would the currently pending applications be grandfathered or would they be returned. The response was that any new regulation would only apply to applications submitted after the effective date of the regulation. Although not directly stated in Attorney Merting’s article, it appears that he too was left to believe that applications pending prior to the regulation effective date would be grandfathered. Specifically, he states, “The current regulations still stand, and if you have been waiting to purchase NFA firearms now is the time. Past transfers should not be affected by this rule change and those with firearms owned by a trust will be grandfathered in.” (emphasis in original).

Accordingly, based upon the information currently available to me, it is my opinion and conclusion that if you are currently contemplating purchasing an NFA firearm using a trust or other fictitious legal entity that you submit the application with haste. If you have not yet formed your fictitious entity, it will likely be in your best interest to form that entity now and submit your application(s), as it appears that any application submitted prior to the effective date of the regulation will be grandfathered.

UPDATE: Attorney Merting has responded, “Josh, During my conversation with Brenda she did acknowledge that pending applications would be processed, but she could not say what date would be pending. (i.e. deposit in the mail, receipt at ATF, or cashing of the tax check.) She suggested that “normally” final rules are announced 30 days ahead of time.”