Proposed Rule2023-19177
Definition of “Engaged in the Business” as a Dealer in Firearms
Primary source
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Published
September 8, 2023
Issuing agencies
Justice DepartmentAlcohol, Tobacco, Firearms, and Explosives Bureau
Abstract
The Department of Justice ("Department") proposes amending Bureau of Alcohol, Tobacco, Firearms, and Explosives ("ATF") regulations to implement the provisions of the Bipartisan Safer Communities Act ("BSCA"), effective June 25, 2022, that broaden the definition of when a person is considered "engaged in the business" as a dealer in firearms other than a gunsmith or pawnbroker. This proposed rule incorporates the BSCA's definition of "predominantly earn a profit," creates a stand-alone definition of "terrorism," and amends the definitions of "principal objective of livelihood and profit" and "engaged in the business" to ensure each conforms with the BSCA's statutory changes and can be relied upon by the public. The proposed rule also clarifies what it means for a person to be "engaged in the business" of dealing in firearms, and to have the intent to "predominantly earn a profit" from the sale or disposition of firearms. In addition, it clarifies the term "dealer," including how that term applies to auctioneers, and defines the term "responsible person." These proposed changes would assist persons in understanding when they are required to have a license to deal in firearms. Consistent with the Gun Control Act ("GCA") and existing regulations, the proposed rule also defines the term "personal collection" to clarify when persons are not "engaged in the business" because they make only occasional sales to enhance a personal collection, or for a hobby, or if the firearms they sell are all or part of a personal collection. This proposed rule further addresses the lawful ways in which former licensees, and responsible persons acting on behalf of such licensees, may liquidate business inventory upon revocation or other termination of their license. Finally, the proposed rule clarifies that a licensee transferring a firearm to another licensee must do so by following the verification and recordkeeping procedures instead of using a Firearms Transaction Record, ATF Form 4473.
Full Text
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<title>Federal Register, Volume 88 Issue 173 (Friday, September 8, 2023)</title>
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[Federal Register Volume 88, Number 173 (Friday, September 8, 2023)]
[Proposed Rules]
[Pages 61993-62023]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-19177]
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DEPARTMENT OF JUSTICE
Bureau of Alcohol, Tobacco, Firearms, and Explosives
27 CFR Part 478
[Docket No. ATF 2022R-17; AG Order No. 5781-2023]
RIN 1140-AA58
Definition of ``Engaged in the Business'' as a Dealer in Firearms
AGENCY: Bureau of Alcohol, Tobacco, Firearms, and Explosives,
Department of Justice.
ACTION: Notice of proposed rulemaking; request for comment.
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SUMMARY: The Department of Justice (``Department'') proposes amending
Bureau of Alcohol, Tobacco, Firearms, and Explosives (``ATF'')
regulations to implement the provisions of the Bipartisan Safer
Communities Act (``BSCA''), effective June 25, 2022, that broaden the
definition of when a person is considered ``engaged in the business''
as a dealer in firearms other than a gunsmith or pawnbroker. This
proposed rule incorporates the BSCA's definition of ``predominantly
earn a profit,'' creates a stand-alone definition of ``terrorism,'' and
amends the definitions of ``principal objective of livelihood and
profit'' and ``engaged in the business'' to ensure each conforms with
the BSCA's statutory changes and can be relied upon by the public. The
proposed rule also clarifies what it means for a person to be ``engaged
in the business'' of dealing in firearms, and to have the intent to
``predominantly earn a profit'' from the sale or disposition of
firearms. In addition, it clarifies the term ``dealer,'' including how
that term applies to auctioneers, and defines the term ``responsible
person.'' These proposed changes would assist persons in understanding
when they are required to have a license to deal in firearms.
Consistent with the Gun Control Act (``GCA'') and existing regulations,
the proposed rule also defines the term ``personal collection'' to
clarify when persons are not ``engaged in the business'' because they
make only occasional sales to enhance a personal collection, or for a
hobby, or if the firearms they sell are all or part of a personal
collection. This proposed rule further addresses the lawful ways in
which former licensees, and responsible persons acting on behalf of
such licensees, may liquidate business inventory upon revocation or
other termination of their license. Finally, the proposed rule
clarifies that a licensee transferring a firearm to another licensee
must do so by following the verification and recordkeeping procedures
instead of using a Firearms Transaction Record, ATF Form 4473.
DATES: Written comments must be post-marked and electronic comments
must be submitted on or before December 7, 2023. Commenters should be
aware that the electronic Federal Docket Management System will not
accept comments after midnight Eastern Time on the last day of the
comment period.
ADDRESSES: You may submit comments, identified by docket number ATF
2022R-17, by either of the following methods--
<bullet> Federal eRulemaking Portal: <a href="http://www.regulations.gov">www.regulations.gov</a>. Follow
the instructions for submitting comments.
<bullet> Mail: Helen Koppe, Mail Stop 6N-518, Office of Regulatory
Affairs, Enforcement Programs and Services, Bureau of Alcohol, Tobacco,
Firearms, and Explosives, 99 New York Ave. NE, Washington, DC 20226;
ATTN: ATF 2022R-17.
Instructions: All submissions received must include the agency name
and docket number (ATF 2022R-17) for this notice of proposed rulemaking
(``NPRM'' or ``proposed rule''). All properly completed comments
received from either of the methods described above will be posted
without change to the Federal eRulemaking portal, <a href="http://www.regulations.gov">www.regulations.gov</a>.
This includes any personal identifying information (``PII'') submitted
in the body of the comment or as part of a related attachment.
Commenters who submit through the Federal eRulemaking portal and who do
not want any of their PII posted on the internet should omit PII from
the body of their comment or in any uploaded attachments. Commenters
who submit through mail should likewise omit their PII from the body of
the comment and provide any PII on the cover sheet only. For detailed
instructions on submitting comments and additional information on the
rulemaking process, see the ``Public Participation'' heading of the
SUPPLEMENTARY INFORMATION section of this document.
FOR FURTHER INFORMATION CONTACT: Helen Koppe, Office of Regulatory
Affairs, Enforcement Programs and Services, Bureau of Alcohol, Tobacco,
Firearms, and Explosives, U.S. Department of Justice, 99 New York Ave.
NE, Washington, DC 20226; telephone: (202) 648-7070 (this is not a
toll-free number).
SUPPLEMENTARY INFORMATION:
I. Background
The Department is proposing to amend ATF regulations to implement
the provision of the Bipartisan Safer Communities Act, Public Law 117-
159, sec. 12002, 136 Stat. 1313, 1324 (2022) (``BSCA''), that amended
the definition of ``engaged in the business'' in the Gun Control Act of
1968 (``GCA'') at 18 U.S.C. 921(a)(21)(C), and to facilitate compliance
with the statute.
The Attorney General is responsible for enforcing the GCA. This
responsibility includes the authority to promulgate regulations
necessary to enforce the provisions of the GCA. See 18 U.S.C. 926(a).
Congress and the Attorney General have delegated the responsibility for
administering and enforcing the GCA to the Director of ATF
(``Director''), subject to the direction of the Attorney General and
the Deputy Attorney General. See 28 U.S.C. 599A(b)(1)-(2), (c)(1); 28
CFR 0.130(a)(1) and (2); Treasury Department Order No. 221, sec.
(2)(a), (d), 37 FR 11696, 11696-97 (June 10, 1972). Accordingly, the
Department and ATF have promulgated regulations necessary
[[Page 61994]]
to implement the GCA. See 27 CFR part 478.
The GCA, at 18 U.S.C. 922(a)(1)(A), makes it unlawful for any
person, except a licensed dealer, to ``engage in the business'' of
dealing in firearms.\1\ The GCA further provides that no person shall
engage in the business of dealing in firearms until the person has
filed an application with and received a license to do so from the
Attorney General (18 U.S.C. 923(a)), who has delegated that function to
ATF (28 CFR 0.130(a)(1)). The application contains information
necessary to determine eligibility for licensing and must include a
photograph, fingerprints of the applicant, and a license application
fee. The fee for dealers in firearms other than destructive devices is
currently set by the GCA at $200 for the first three-year period and
$90 for a renewal period of three years. 18 U.S.C. 923(a)(3)(B); 27 CFR
478.42(c)(2). The Application for Federal Firearms License, ATF Form
7(5310.12)/7CR (5310.16) (``Form 7''), requires the applicant to
include a completed Federal Bureau of Investigation (``FBI'') Form FD-
258 (``Fingerprint Card'') and a photograph for all responsible
persons, including sole proprietors. See ATF Form 7, Instruction 6.
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\1\ Persons who engage in the business of manufacturing or
importing firearms, including those that are 3D printed or assembled
from parts, must also be licensed. 18 U.S.C. 922(a)(1)(A), 923(a).
Once licensed, importers and manufacturers may also engage in the
business of dealing but only at their licensed premises and only in
the same type of firearms their license authorizes them to import or
manufacture. See 27 CFR 478.41(b).
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Significantly, under the GCA, once licensed, firearms dealers are
required to conduct background checks through the FBI's National
Instant Criminal Background Check System (``NICS'') on prospective
firearm recipients to prevent prohibited persons from receiving
firearms, and to maintain firearms transaction records for crime gun
tracing purposes. See 18 U.S.C. 922(t); 923(g)(1)(A). Persons who
willfully engage in the business of dealing in firearms without a
license are subject to a term of imprisonment of up to five years, a
fine of up to $250,000, or both. Id. 922(a)(1)(A); 924(a)(1)(D);
3571(b)(3).
A. Advance Notice of Proposed Rulemaking (1979)
The term ``dealer'' is defined by the GCA, 18 U.S.C. 921(a)(11)(A),
and 27 CFR 478.11, to mean ``any person engaged in the business of
selling firearms at wholesale or retail.'' However, as originally
enacted, the GCA did not define the term ``engaged in the business.''
\2\ Nor did ATF define the term ``engaged in the business'' in the
original GCA implementing regulations.\3\ Although courts had
``continually found that the current situation'' was ``adequate for
enforcement purposes,'' ATF published an Advance Notice of Proposed
Rulemaking (``ANPRM'') in the Federal Register in 1979 in an effort to
``develop a workable, commonly understood definition of [`engaged in
the business'].'' See 44 FR 75186, 75186-87 (Dec. 19, 1979) (``1979
ANPRM''); 45 FR 20930 (Mar. 31, 1980) (extending the comment period for
30 more days). The ANPRM referenced the lack of a common understanding
of that term by the courts and requested comments from the public and
industry on how the phrase should be defined and the feasibility and
desirability of defining it.
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\2\ See generally Public Law 90-617, 82 Stat. 1213 (1968).
\3\ 33 FR 18555 (Dec. 14, 1968).
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ATF received 844 comments in response, of which approximately 551,
or 65.3 percent, were in favor of ATF defining that term.\4\ This
included approximately 324 firearms dealers in favor of defining the
term. However, none of the proposed definitions appeared ``to be broad
enough to cover all possible circumstances and still be narrow enough
to be of real benefit in any particular case.'' \5\ One possible
definition ATF considered would have established a threshold number of
firearms sales per year to serve as a baseline for when a person would
qualify as a dealer. The threshold numbers proposed ranged from ``more
than one'' to ``more than 100'' per year. ATF did not adopt that
proposal because it would have potentially interfered with tracing
firearms by persons who avoided obtaining a license (and therefore kept
no records) by selling firearms under the minimum threshold.\6\
Ultimately, ATF decided not to proceed further with rulemaking at that
time. Congress also had not yet acted on then-proposed legislation--the
McClure-Volkmer bill (discussed below)--which, among other provisions,
sought to define ``engaged in the business.'' \7\ For additional
reasons why ATF has not adopted a minimum number of sales, see Section
II.D of this preamble.
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\4\ Memorandum for Assistant Director, Regulatory Enforcement,
ATF, from Chief, Regulations and Procedures Division, ATF, Re:
Evaluation of Comments Received Concerning a Definition of the
Phrase ``Engaged in the Business,'' Notice No. 331, at 1-2 (June 9,
1980) (``ATF Internal Memorandum''), attach. Summary Sheet on
``Engaged in the Business,'' ANPRM No. 331, Published December 19,
1979, at 1.
\5\ Id.
\6\ See id. at 2.
\7\ ATF Internal Memorandum at 4.
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B. Firearms Owners' Protection Act of 1986
Approximately six years later, the McClure-Volkmer bill was enacted
as part of the Firearms Owners' Protection Act (``FOPA''), Public Law
99-308, 100 Stat. 449 (1986). With its passage, FOPA added a statutory
definition of ``engaged in the business'' to the GCA. As applied to a
person selling firearms at wholesale or retail, it defined the term
``engaged in the business'' in 18 U.S.C. 921(a)(21)(C) as ``a person
who devotes time, attention, and labor to dealing in firearms as a
regular course of trade or business with the principal objective of
livelihood and profit through the repetitive purchase and resale of
firearms.'' \8\ The term excluded ``a person who makes occasional
sales, exchanges, or purchases of firearms for the enhancement of a
personal collection or for a hobby, or who sells all or part of his
personal collection of firearms.'' \9\ FOPA further defined the term
``with the principal objective of livelihood and profit'' to mean
``that the intent underlying the sale or disposition of firearms is
predominantly one of obtaining livelihood and pecuniary gain, as
opposed to other intents, such as improving or liquidating a personal
firearms collection.'' \10\ Congress amended FOPA a few months later,
clarifying that ``proof of profit'' was not required ``as to a person
who engages in the regular and repetitive purchase and disposition of
firearms for criminal purposes or terrorism.'' \11\
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\8\ Public Law 99-308, sec. 101, 100 Stat. at 450.
\9\ Id.
\10\ Id.
\11\ Public Law 99-360, sec. 1(b), 100 Stat. 766, 766 (1986).
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Consistent with their text, the definitions' purposes were to
clarify that individuals not otherwise engaged in the business of
dealing firearms who make only occasional firearms sales for a hobby
are not required to obtain a license, and to benefit law enforcement
``by establishing clearer standards for investigative officers and
assisting in the prosecution of persons truly intending to flout the
law.'' \12\ The legislative history also reveals that Congress did not
intend to limit the license requirement to only persons for whom
selling or disposing of firearms is a principal source of income or a
principal business activity. The Committee Report stated, ``[t]hus,
this provision would not remove the necessity for licensing from part-
time
[[Page 61995]]
businesses or individuals whose principal income comes from sources
other than firearms, but whose main objective with regard to firearm
transfers is profit, rather than hobby.'' \13\
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\12\ S. Rep. No. 98-583, at 8 (1984).
\13\ Id. The Committee Report further explained that a statutory
reference to pawnbrokers in the definition of ``engaged in the
business'' was deleted because ``all pawnbrokers whose business
includes the taking of any firearm as security for the repayment of
money would automatically be a `dealer.' '' Id. at 9.
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Two years after enactment, FOPA's definition of ``engaged in the
business'' was incorporated into ATF's implementing regulations at 27
CFR 178.11 (now 478.11) in defining the term ``Dealer in firearms other
than a gunsmith or a pawnbroker.'' \14\ At the same time, consistent
with the statutory text and legislative history, ATF amended the
regulatory term ``dealer'' to clarify that the term includes ``any
person who engages in such business or occupation on a part-time
basis.'' \15\
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\14\ 53 FR 10480, 10491 (Mar. 31, 1988).
\15\ Id. 10490-91.
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With respect to ``personal collections,'' FOPA included a
provision, codified at 18 U.S.C. 923(c), that expressly authorized
licensees to maintain and dispose of private firearms collections
separately from their business operations. However, under FOPA, as
amended, the ``personal collection'' provision was and remains subject
to three limitations. 18 U.S.C. 923(c). First, if a licensee records
the disposition (i.e., transfer) of any firearm from their business
inventory into a personal collection, that firearm legally remains part
of the licensee's business inventory until one year has elapsed after
the date of transfer. Should the licensee wish to sell or otherwise
dispose of any such ``personal'' firearm during that one-year period,
the licensee must re-transfer the applicable firearm back into the
business inventory at the licensee's business premises ``with
appropriate recording.'' \16\ A subsequent transfer from the business
inventory would then be subject to the recordkeeping and background-
check requirements of the GCA applicable to all other firearms in the
business inventory. Second, if a licensee acquires or disposes of any
firearm for the purpose of willfully evading the restrictions placed
upon licensees under the GCA, that firearm always legally remains part
of the business inventory. Thus, ``circuitous transfers are not exempt
from otherwise applicable licensee requirements.'' \17\ Third, even
when a licensee has made a bona fide transfer of a firearm from their
personal collection, section 923(c) requires the licensee to record the
description of the firearm in a bound volume along with the name, place
of residence, and date of birth of an individual transferee, or if a
corporation or other business entity, the transferee's identity and
principal and local places of business.\18\ ATF incorporated these
provisions into its FOPA implementing regulations in 1988.\19\
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\16\ S. Rep. No. 98-583, at 13.
\17\ Id.
\18\ See Public Law 99-360, sec. 1(c), 100 Stat. at 766-67.
\19\ See 53 FR 10480; 27 CFR 178.125a (now 478.125a).
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Courts interpreting the 1986 FOPA definition of ``engaged in the
business'' found a number of factors relevant to assessing whether a
person met that standard. For example, in one leading case, the U.S.
Court of Appeals for the Third Circuit listed the following
nonexclusive factors for consideration to determine whether the
defendant's principal objective was livelihood and profit (i.e.,
economic): (1) quantity and frequency of sales; (2) location of the
sales; (3) conditions under which the sales occurred; (4) defendant's
behavior before, during, and after the sales; (5) price charged for the
weapons and the characteristics of the firearms sold; and (6) intent of
the seller at the time of the sales. United States v. Tyson, 653 F.3d
192, 200-01 (3d Cir. 2011). The court expanded further that, ``[a]s is
often the case in such analyses, the importance of any one of these
considerations is subject to the idiosyncratic nature of the fact
pattern presented.'' Id. at 201. In a separate case, the Third Circuit
also stated, ``[a]lthough the definition explicitly refers to economic
interests as the principal purpose, and repetitiveness as the modus
operandi, it does not establish a specific quantity or frequency
requirement. In determining whether one is engaged in the business of
dealing in firearms, the finder of fact must examine the intent of the
actor and all circumstances surrounding the acts alleged to constitute
engaging in business. This inquiry is not limited to the number of
weapons sold or the timing of the sales.'' United States v. Palmieri,
21 F.3d 1265, 1268 (3d Cir. 1994), vacated on other grounds, 513 U.S.
957 (1994).\20\
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\20\ See also United States v. Brenner, 481 F. App'x 124, 127
(5th Cir. 2012) (``Needless to say, in determining the character and
intent of firearms transactions, the jury must examine all
circumstances surrounding the transaction, without the aid of a
`bright-line rule.'''); United States v. Bailey, 123 F.3d 1381, 1392
(11th Cir. 1997) (``In determining whether one is engaged in the
business of dealing in firearms, the finder of fact must examine the
intent of the actor and all circumstances surrounding the acts
alleged to constitute engaging in business.'' (quotation marks and
citation omitted)); United States v. Nadirashvili, 655 F.3d 114, 119
(2d Cir. 2011) (``[T]he government need not prove that dealing in
firearms was the defendant's primary business. Nor is there a `magic
number' of sales that need be specifically proven. Rather, the
statute reaches those who hold themselves out as a source of
firearms. Consequently, the government need only prove that the
defendant has guns on hand or is ready and able to procure them for
the purpose of selling them from [time] to time to such persons as
might be accepted as customers.'' (quoting United States v. Carter,
801 F.2d 78, 81-82 (2d Cir. 1986))).
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C. Executive Action To Reduce Gun Violence (2016)
On January 4, 2016, President Obama announced several executive
actions to reduce gun violence and to make communities across the
United States safer. Among them was a requirement that ATF clarify, in
a manner consistent with court rulings on the issue: (1) that a person
can be engaged in the business of dealing in firearms regardless of the
location in which firearm transactions are conducted, and (2) that
there is no specific threshold number of firearms purchased or sold
that triggers the licensure requirement.\21\ To provide this
clarification, ATF published a guidance document entitled Do I Need a
License to Buy and Sell Firearms?, ATF Publication 5310.2 (Jan. 2016),
<a href="https://www.atf.gov/file/100871/download">https://www.atf.gov/file/100871/download</a>, which addressed these topics.
The guidance was developed to assist unlicensed persons in
understanding when they will likely need to obtain a license as a
dealer in firearms. ATF is updating this guidance to conform with the
``engaged in the business'' definition as amended by the BSCA. Further,
once a final rule is adopted based on this NPRM, ATF intends to update
the guidance to include additional detail as needed to conform with the
rule.
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\21\ See The White House, Office of the Press Secretary, FACT
SHEET: New Executive Actions to Reduce Gun Violence and Make Our
Communities Safer (Jan. 4, 2016), <a href="https://obamawhitehouse.archives.gov/the-press-office/2016/01/04/fact-sheet-new-executive-actions-reduce-gun-violence-and-make-our">https://obamawhitehouse.archives.gov/the-press-office/2016/01/04/fact-sheet-new-executive-actions-reduce-gun-violence-and-make-our</a>.
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D. Bipartisan Safer Communities Act (2022)
Over 35 years after FOPA's enactment, on June 25, 2022, President
Biden signed into law the Bipartisan Safer Communities Act, Public Law
117-159, 136 Stat. 1313. Section 12002 of the BSCA broadened the
definition of ``engaged in the business'' under 18 U.S.C. 921(a)(21)(C)
to all persons who intend to ``predominantly earn a profit'' from
wholesale or retail dealing in firearms by eliminating the requirement
that a person's ``principal objective'' of purchasing and reselling
firearms must include both ``livelihood and profit.'' The statute now
provides that, as applied to a dealer in firearms, the term
[[Page 61996]]
``engaged in the business'' means ``a person who devotes time,
attention, and labor to dealing in firearms as a regular course of
trade or business to predominantly earn a profit through the repetitive
purchase and resale of firearms.'' However, the BSCA definition does
not include ``a person who makes occasional sales, exchanges, or
purchases of firearms for the enhancement of a personal collection or
for a hobby, or who sells all or part of his personal collection of
firearms.'' 18 U.S.C. 921(a)(21)(C).
As now defined by the BSCA, the term ``to predominantly earn a
profit'' means that the person who engages in selling or disposing of
firearms has a predominant intent of obtaining pecuniary gain, as
opposed to other intents, such as improving or liquidating a personal
firearms collection. The statutory definition further provides that
proof of profit is not required as to a person who engages in the
regular and repetitive purchase and disposition of firearms for
criminal purposes or terrorism. 18 U.S.C. 921(a)(22). According to the
BSCA's sponsors, the BSCA's change to the definition was driven by
``confusion about the GCA's definition of `engaged in the business,' as
it pertained to individuals who bought and resold firearms repetitively
for profit, but possibly not as the principal source of their
livelihood.'' \22\ The sponsors ``maintain[ed] that these changes
clarify who should be licensed, eliminating a `gray' area in the law,
ensuring that one aspect of firearms commerce is more adequately
regulated.'' \23\ Congress did not make the same amendment to the
various definitions of ``engaged in the business'' in 18 U.S.C.
921(a)(21) with respect to licensed gunsmiths, manufacturers, or
importers.\24\
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\22\ William J. Krouse, Cong. Research Serv., IF12197, Firearms
Dealers ``Engaged in the Business'' at 2 (Aug. 19, 2022).
\23\ Id.; 168 Cong. Rec. H5906 (daily ed. June 24, 2022)
(Statement of Rep. Jackson Lee) (``[O]ur bill would . . . further
strengthen the background check process by clarifying who is engaged
in the business of selling firearms and, as a result, is required to
run background checks.''); 168 Cong. Rec. S3055 (daily ed. June 22,
2022) (Statement of Sen. Murphy) (``We clarify in this bill the
definition of a federally licensed gun dealer to make sure that
everybody who should be licensed as a gun owner is. In one of the
mass shootings in Texas, the individual who carried out the crime
was mentally ill. He was a prohibited purchaser. He shouldn't have
been able to buy a gun. He was actually denied a sale when he went
to a bricks-and-mortar gun store, but he found a way around the
background check system because he went online and found a seller
there who would transfer a gun to him without a background check. It
turned out that seller was, in fact, engaged in the business, but
didn't believe the definition applied to him because the definition
is admittedly confusing. So we simplified that definition and hope
that will result--and I believe it will result--in more of these
frequent online gun sellers registering, as they should, as
federally licensed gun dealers which then requires them to perform
background checks.''); see also Letter for Director, ATF, et al.,
from Sens. John Cornyn and Thom Tillis at 2-3 (Nov. 1, 2022)
(``Cornyn/Tillis Letter'') (``The BSCA provides more clarity to the
industry for when someone must obtain a federal firearms dealers
license. In Midland and Odessa, Texas, for example, the shooter--who
at the time was prohibited form possessing or owning a firearm under
federal law--purchased a firearm from an unlicensed firearms
dealer.'').
\24\ The BSCA retained the existing term ``with the principal
objective of livelihood and profit,'' which still applies to persons
engaged in the business as manufacturers, gunsmiths, and importers.
That definition became 18 U.S.C. 921(a)(23), and Congress renumbered
other definitions in section 921 accordingly.
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E. Executive Order 14092 (2023)
On March 14, 2023, President Biden issued Executive Order 14092,
``Reducing Gun Violence and Making Our Communities Safer.'' That order
requires the Attorney General to report actions taken to implement the
BSCA and to develop and implement a plan to: (1) clarify the definition
of who is engaged in the business of dealing in firearms, and thus
required to become Federal firearms licensees (``FFLs''), in order to
increase compliance with the Federal background check requirement for
firearm sales, including by considering a rulemaking, as appropriate
and consistent with applicable law; and (2) prevent former FFLs whose
licenses have been revoked or surrendered from continuing to engage in
the business of dealing in firearms.\25\
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\25\ Reducing Gun Violence and Making Our Communities Safer,
E.O. 14092, secs. 2, 3(a)(i)-(ii), 88 FR 16527, 16527-28 (Mar. 14,
2023).
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This NPRM proposes to implement the ``engaged in the business''
provisions of the BSCA \26\ and the Department's plan in response to
Executive Order 14092 by making conforming changes to the new or
amended definitions, by clarifying the updated BSCA definition of
``engaged in the business,'' and by preventing former FFLs whose
licenses have been revoked or surrendered from continuing to engage in
the business of dealing in firearms. The rule proposes to accomplish
this clarity and deterrence by setting forth specific activities
demonstrating when an unlicensed person's buying and selling of
firearms presumptively rises to the level of being ``engaged in the
business,'' thus requiring that person to obtain a dealer's license,
conduct background checks, and abide by the other requirements set
forth in the GCA. At the same time, it recognizes that individuals who
purchase firearms for the enhancement of a personal collection or a
legitimate hobby are permitted by the GCA to occasionally buy and sell
firearms for those purposes without the need to obtain a license.
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\26\ The Department is also issuing a separate rulemaking to
amend ATF's regulations to conform with other provisions in the
BSCA.
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II. Proposed Rule
As stated previously, the BSCA revised 18 U.S.C. 921(a)(21)(C) to
change part of the definition of persons ``engaged in the business'' of
dealing in firearms. This amendment broadened the definition to reflect
that it applies to persons who engage in the business of purchasing and
selling firearms at wholesale or retail with the predominant purpose of
earning a profit, rather than just to persons whose primary purpose is
both livelihood and profit. This means ``that the intent underlying the
sale or disposition of firearms is predominantly one of obtaining
pecuniary gain, as opposed to other intents, such as improving or
liquidating a personal firearms collection.'' 18 U.S.C. 921(a)(22).
``As a result, the BSCA definitional changes could make some, but not
all, intrastate, private firearm transfers subject to GCA recordkeeping
and background check requirements'' that previously were not subject to
those requirements, ``if those transfers are made by profit-oriented,
repetitive firearms buyers and sellers.'' \27\
---------------------------------------------------------------------------
\27\ Krouse, Cong. Research Serv., Firearms Dealers ``Engaged in
the Business'' at 2.
---------------------------------------------------------------------------
To implement the new statutory language, this proposed rule amends
paragraph (c) of the regulatory definition of ``engaged in the
business,'' in Sec. 478.11, pertaining to a ``dealer in firearms other
than a gunsmith or pawnbroker,'' to conform with 18 U.S.C.
921(a)(21)(C) by removing the phrase ``with the principal objective of
livelihood and profit'' and replacing it with the phrase ``to
predominantly earn a profit.'' This proposed rule also amends Sec.
478.11 to conform with new 18 U.S.C. 921(a)(22) by adding the statutory
definition of ``predominantly earn a profit'' as a new regulatory
definition. Additionally, this rule proposes to move the regulatory
definition of ``terrorism,'' which currently exists in the regulations
under
[[Page 61997]]
the definition of ``principal objective of livelihood and profit,'' to
a new stand-alone definition. This is because the BSCA definitions of
``to predominantly earn a profit'' (18 U.S.C. 921(a)(22)) and ``with
the principal objective of livelihood and profit'' (18 U.S.C.
921(a)(23)) both include the same exception to the requirement to prove
intent to profit when a licensee engages in the firearms business for
the purpose of terrorism.
To further implement these statutory changes, this rule then
proposes to clarify when a person is ``engaged in the business'' as a
dealer in firearms at wholesale or retail by: (a) clarifying the
definition of ``dealer''; (b) defining the terms ``purchase'' and
``sale'' as they apply to dealers; (c) clarifying when a person would
not be engaged in the business of dealing in firearms as an auctioneer,
or when purchasing firearms for, and selling firearms from, a personal
collection; (d) setting forth conduct that is, in civil and
administrative proceedings, presumed to constitute ``engaging in the
business'' of dealing in firearms and presumed to demonstrate the
intent to ``predominantly earn a profit'' from the sale or disposition
of firearms, absent reliable evidence to the contrary; (e) adding a
single definition for the terms ``personal collection,'' ``personal
firearms collection,'' and ``personal collection of firearms''; (f)
adding a definition for the term ``responsible person''; (g) clarifying
that the intent to ``predominantly earn a profit'' does not require the
person to have received pecuniary gain, and that intent does not have
to be shown when a person purchases or sells a firearm for criminal or
terrorism purposes; (h) addressing how former licensees, and
responsible persons acting on behalf of former licensees, may lawfully
liquidate business inventory upon revocation or other termination of
their license; and (i) clarifying that licensees must follow the
verification and recordkeeping procedures in 27 CFR 478.94 and subpart
H of title 27, part 478, rather than using a Firearms Transaction
Record, ATF Form 4473 (``Form 4473'') when firearms are transferred to
other licensees, including transfers by a licensed sole proprietor to
that person's personal collection.
A. Definition of ``Dealer''
In enacting the BSCA, Congress expanded the definition of ``engaged
in the business'' ``as applied to a dealer in firearms,'' as noted
above. 18 U.S.C. 921(a)(21)(C). Consistent with the text and purpose of
the GCA, ATF regulations have long defined the term ``dealer'' to
include persons engaged in the business of selling firearms at
wholesale or retail, or as a gunsmith or pawnbroker, on a part-time
basis. 27 CFR 478.11 (definition of ``Dealer'').\28\ Due to the BSCA
amendments, the Department has further considered what it means to be a
``dealer'' engaged in the firearms business in light of new
technologies, mediums of exchange, and forums in which firearms are
bought and sold with the predominant intent of obtaining pecuniary
gain.
---------------------------------------------------------------------------
\28\ 53 FR at 10481 (``The final rule retains the sentence
[including part-time dealers] since it comports with legislative
intent as expressed in committee reports.''); see also United States
v. McGowan, 746 F. App'x 679, 680 (9th Cir. 2018) (``Selling
firearms need not have been McGowan's primary source of income.'');
United States v. Focia, 869 F.3d 1269, 1281 (11th Cir. 2017)
(``[N]othing in the [FOPA] amendments or the rest of the statutory
language indicates that a person violates Sec. 922(a)(1)(A) only by
selling firearms as his primary means of income.''); United States
v. Valdes, 681 F. App'x 874, 877 (11th Cir. 2017) (``The government
must prove the defendant's activity rose above `the occasional sale
of a hobbyist,' but does not need to show `the defendant's primary
business was dealing in firearms or that [she] necessarily made a
profit from dealing.' ''); United States v. Ibarra, 581 F. App'x
687, 690 (9th Cir. 2014) (``The statute requires that the defendant
have a `principal objective of livelihood and profit,' . . . but
nowhere requires a principal objective that that profit be one's
primary source of income.''); United States v. Shipley, 546 F. App'x
450, 454 (5th Cir. 2013) (upholding conviction for dealing in
firearms as a regular side business to supplement lawful income);
United States v. Gray, 470 F. App'x 468, 472 (6th Cir. 2012) (``[A]
defendant need not deal in firearms as his primary business for
conviction.''); Nadirashvili, 655 F.3d at 119 (quoting Carter, 801
F.2d at 81-81, as holding that ``[t]he government need not prove
that dealing in firearms was the defendant's primary business'');
United States v. Manthey, 92 F. App'x 291, 297 (6th Cir. 2004)
(``[A] defendant need not deal in firearms as his primary business
for conviction.''); United States v. Allah, 130 F.3d 33, 43-44 (2d
Cir. 1997) (``[I]t is not a necessary element of the crime [of
dealing without a license] that a defendants' only business be that
of selling firearms''); United States v. Beecham, Nos. 92-5147, 92-
5399, 1993 WL 188295, at *3 (4th Cir. June 2, 1993) (``The
government need not prove that a defendant's primary business was
dealing in firearms or that he necessarily made a profit from it.''
(internal quotation marks omitted)).
---------------------------------------------------------------------------
Since 1968, advancements in manufacturing (e.g., 3D printing) and
distribution technology (e.g., internet sales) and changes in the
marketplace for firearms and related products (e.g., large-scale gun
shows) have increased the ways in which individuals shop for firearms,
and therefore have created a need for further clarity in the regulatory
definition of ``dealer.'' \29\ The proliferation of new communications
technologies and e-commerce has made it simple for persons to advertise
and sell firearms to a large potential market at minimal cost and with
minimal effort, using a variety of means, and often as a part-time
activity. The proliferation of sales at larger-scale gun shows, flea
markets, other similar events, and online has also altered the
marketplace since the GCA was enacted in 1968.
---------------------------------------------------------------------------
\29\ See Cornyn/Tillis Letter at 3 (``Our legislation aims at
preventing someone who is disqualified from owning or possessing a
firearm from shopping around for an unlicensed firearm dealer.'').
---------------------------------------------------------------------------
Therefore, to provide additional guidance on what it means to be
engaged in the business as a ``dealer'' within the diverse modern
marketplace, this rule first proposes to amend the regulatory
definition of ``dealer'' in 27 CFR 478.11 to clarify that firearms
dealing may occur wherever, or through whatever medium, qualifying
activities may be conducted. This includes at any domestic or
international public or private marketplace or premises. The revised
definition provides nonexclusive examples of such marketplaces: a gun
show \30\ or event,\31\ flea market,\32\ auction house,\33\ or gun
range or club; at one's home; by mail order; \34\ over the internet;
\35\ through the use of other electronic means (e.g., an
[[Page 61998]]
online broker,\36\ online auction,\37\ text messaging service,\38\
social media raffle,\39\ or website \40\); or at any other domestic or
international public or private marketplace or premises. These examples
are provided to clarify for unlicensed persons that firearms dealing
requires a license in whatever place or through whatever medium the
firearms are purchased and sold, including the internet and locations
other than a traditional brick and mortar store.\41\ However,
regardless of the medium or location at which a dealer buys and sells
firearms, to obtain a license under the GCA, the dealer must still have
a fixed premises in a State from which to conduct business subject to
the license, and comply with all applicable State and local laws
regarding the conduct of such business.\42\ 18 U.S.C. 923(d)(1)(E)-(F).
---------------------------------------------------------------------------
\30\ See ATF FFL Newsletter, July 2017, at 9 (gun show
guidelines); Important Notice to Dealers and Other Participants at
This Gun Show, ATF Information 5300.23A (Sept. 2010); ATF Ruling 69-
59.
\31\ See ATF Q&A, How may a licensee participate in the raffling
of firearms by an unlicensed organization?, <a href="https://www.atf.gov/firearms/qa/how-may-licensee-participate-raffling-firearms-unlicensed-organization">https://www.atf.gov/firearms/qa/how-may-licensee-participate-raffling-firearms-unlicensed-organization</a> (May 22, 2020); ATF FFL Newsletter, June
2021, at 8-9 (addressing conduct of business at firearm raffles);
Letter to Pheasants Forever, from Acting Chief, Firearms Programs
Division, ATF at 1-2 (July 9, 1999) (addressing nonprofit
fundraising banquets); 1 ATF FFL Newsletter, Feb. 1999, at 4-5
(addressing dinner banquets).
\32\ See ATF FFL Newsletter, June 2010, at 5-6 (flea market
guidelines).
\33\ See Selling firearms--legally: A Q&A with the ATF,
Auctioneer, at 22-27 (June 2010).
\34\ See, e.g., United States v. Buss, 461 F. Supp. 1016 (W.D.
Pa. 1978) (holding that mail order sales by unlicensed defendant
violated statute proscribing illegally engaging in business of
dealing in firearms, even though defendant acted in concert with
licensed firearms dealers who recorded the transfers).
\35\ See ATF FFL Newsletter, June 2021, at 8 (addressing
internet sales of firearms); ATF Intelligence Assessment, Firearms
and Internet Transactions (Feb. 9, 2016); Felon Seeks Firearm, No
Strings Attached: How Dangerous People Evade Background Checks and
Buy Illegal Guns Online, City of New York (Sept. 2013), <a href="https://www.nyc.gov/html/om/pdf/2013/felon_seeks_firearm.pdf">https://www.nyc.gov/html/om/pdf/2013/felon_seeks_firearm.pdf</a>; Point, Click,
Fire: An Investigation of Illegal Online Gun Sales, City of New York
(Dec. 2011); Focia, 869 F.3d at 1274 (affirming defendant's
conviction for engaging in the business without a license by dealing
firearms through the ``Dark Web'').
\36\ See, e.g., Fulkerson v. Lynch, 261 F. Supp. 3d 779, 783-86,
788-89 (W.D. Ky. 2017) (denying summary judgment to applicant whose
license was denied by ATF for previously willfully engaging in the
business of dealing without a license through an online broker and
granting summary judgement to the government). Although some dealers
may sell firearms through online services sometimes called
``brokers,'' like a magazine or catalog company that only advertises
firearms listed by known sellers and processes orders for them for
direct shipment from the distributor to their buyers, these
``brokers'' are not themselves considered ``dealers.'' This is
because these online ``brokers'' do not purchase the firearms for
valuable consideration (i.e., take or transfer title to them).
Rather, they typically only collect a commission or fee for
providing contracted services to market and process the transaction
for the seller. This is distinguished from a broker who, for
example, purchases the firearms from a manufacturer, importer, or
other distributor, sells the firearms to the buyer, and has them
shipped directly to the buyer from the distributor. Such persons
must be licensed as dealers since they are purchasing and selling
the firearms with the predominant intent to earn a profit. See,
e.g., ATF FFL Newsletter, Sept. 2016, at 3; 2 ATF FFL Newsletter,
Mar. 2023, at 6-7.
\37\ See, e.g., Press Release, Department of Justice Office of
Public Affairs (``OPA''), Minnesota Man Indicted for Dealing
Firearms without a License (Feb. 18, 2016), <a href="https://www.justice.gov/opa/pr/minnesota-man-indicted-dealing-firearms-without-license">https://www.justice.gov/opa/pr/minnesota-man-indicted-dealing-firearms-without-license</a>
(defendant dealt in firearms through websites such as <a href="http://gunbroker.com">gunbroker.com</a>,
an online auction website).
\38\ See, e.g., Press Release, OPA, Odenton, Maryland Man Exiled
to 8 Years in Prison for Firearms Trafficking Conspiracy, DOJ/OPA
(Apr. 27, 2017), <a href="https://www.justice.gov/usao-md/pr/odenton-maryland-man-exiled-8-years-prison-firearms-trafficking-conspiracy">https://www.justice.gov/usao-md/pr/odenton-maryland-man-exiled-8-years-prison-firearms-trafficking-conspiracy</a>
(defendant texted photos of firearms for sale to his customer and
discussed prices).
\39\ See ATF FFL Newsletter, June 2021, at 9 (``Social media gun
raffles are gaining popularity on the internet. In most instances,
the sponsor of the event is not a Federal firearms licensee, but
will enlist the aid of a licensee to facilitate the transfer of the
firearm to the raffle winner. Often, the sponsoring organization
arranges to have the firearm shipped from a distributor to a
licensed third party and never takes physical possession of the
firearm. If the organization's practice of raffling firearms rises
to the level of being engaged in the business of dealing in
firearms, the organization must obtain a Federal firearms
license.'').
\40\ See, e.g., Press Release, Department of Justice United
States Attorney's Office (``USAO''), Snapchat Gun Dealer Convicted
of Unlawfully Manufacturing and Selling Firearms (Oct. 4, 2022),
<a href="https://www.justice.gov/usao-edca/pr/snapchat-gun-dealer-convicted-unlawfully-manufacturing-and-selling-firearms">https://www.justice.gov/usao-edca/pr/snapchat-gun-dealer-convicted-unlawfully-manufacturing-and-selling-firearms</a>; Press Release, USAO,
Sebring Resident Sentenced to Prison for Unlawfully Dealing Firearms
on Facebook (Nov. 7, 2016), <a href="https://www.justice.gov/usao-sdfl/pr/sebring-resident-sentenced-prison-unlawfully-dealing-firearms-facebook">https://www.justice.gov/usao-sdfl/pr/sebring-resident-sentenced-prison-unlawfully-dealing-firearms-facebook</a>.
\41\ See Letter for Outside Counsel to National Association of
Arms Shows, from Chief, Firearms and Explosives Division, ATF, Re:
Request for Advisory Opinion on Licensing for Certain Gun Show
Sellers at 1 (Feb. 17, 2017) (``Anyone who is engaged in the
business of buying and selling firearms, regardless of the
location(s) at which those transactions occur is required to have a
Federal firearms license. ATF will issue a license to persons who
intend to conduct their business primarily at gun shows, over the
internet, or by mail order, so long as they otherwise meet the
eligibility criteria established by law. This includes the
requirement that they maintain a business premises at which ATF can
inspect their records and inventory, and that otherwise complies
with local zoning restrictions''); ATF FFL Newsletter, June 2010, at
5 (Unless there is a permanent business premises from which to
conduct firearms business (e.g., an identified rented space that can
securely hold required records), ``[t]he GCA prohibits any person
from engaging in the business of selling, dealing, or trading in
firearms at flea markets. The only exceptions would be an unlicensed
individual making an occasional firearm sale or for a Federal
firearms licensee to display firearms and take orders of
firearms.''); Letter for Sen. Dan Coats, from Deputy Director, ATF
(Aug. 22, 1990) (an FFL cannot be issued at a table or booth at a
temporary flea market); ATF Internal Memorandum #23264 (June 15,
1983) (same); United States v. Allman, 119 Fed. App'x. 751, 754 (6th
Cir. 2005) (``Illegal gun transactions at flea markets are not
atypical.''); United States v. Orum, 106 F. App'x 972 (6th Cir.
2004) (defendant illegally displayed and sold firearms at flea
markets and gun shows).
\42\ See Abramski v. United States, 573 U.S. 169, 172, 181
(2014) (``The statute establishes a detailed scheme to enable the
dealer to verify, at the point of sale, whether a potential buyer
may lawfully own a gun. Section 922(c) brings the would-be purchaser
onto the dealer's `business premises' by prohibiting, except in
limited circumstances, the sale of a firearm `to a person who does
not appear in person' at that location.''); National Rifle Ass'n v.
Brady, 914 F. 2d 475, 480 (4th Cir. 1990) (holding that FOPA did not
eliminate the requirement that a licensee have a business premises
from which to conduct business ``so that regulatory authorities will
know where the inventory and records of a licensee can be found'');
Meester v. Bowers, No. 12CV86, 2013 WL 3872946 (D. Neb. July 25,
2013) (upholding ATF's denial of license in part because the
applicant lacked a means of accessing the premises).
---------------------------------------------------------------------------
Even though an applicant must have a business premises in a
particular State to obtain a license, under the GCA, firearms purchases
or sales requiring a license in the United States may involve conduct
outside of the United States. Specifically, 18 U.S.C. 922(a)(1)(A) has
long prohibited any person without a license from shipping,
transporting, or receiving any firearm in foreign commerce while in the
course of being engaged in the business of dealing in firearms,\43\ and
18 U.S.C. 924(n) prohibits travelling from a foreign country to a State
in furtherance of conduct that constitutes a violation of section
922(a)(1)(A).
---------------------------------------------------------------------------
\43\ See, e.g., United States v. Baptiste, 607 F. App'x 950, 953
(11th Cir. 2015) (upholding section 922(a)(1) conviction where
firearms purchased in the United States were to be resold in Haiti);
United States v. Murphy, 852 F.2d 1, 8 (1st Cir. 1988) (same with
firearms to be resold in Ireland); United States v. Hernandez, 662
F.2d 289, 291 (5th Cir. 1981) (same with firearms to be resold in
Mexico). But see United States v. Mowad, 641 F.2d 1067 (2d Cir.
1981) (reversing conviction for purchasing firearms for resale in
Lebanon on the basis that there was no mention of exporting firearms
in the GCA or any suggestion of Congressional concern about firearm
violence in other countries).
---------------------------------------------------------------------------
Further, as recently amended by the BSCA, the GCA now expressly
prohibits a person from smuggling or knowingly taking a firearm out of
the United States with intent to engage in conduct that would
constitute a felony for which the person may be prosecuted in a court
in the United States if the conduct had occurred within the United
States. 18 U.S.C. 924(k)(2). Willfully engaging in the business of
dealing in firearms without a license is an offense punishable by more
than one year in prison, see 18 U.S.C. 924(a)(1)(D), and constitutes a
felony. Therefore, unlicensed persons who purchase firearms in the
United States and smuggle or take them out of the United States (or
conspire or attempt to do so) for resale in another country would still
be engaging in unlawful dealing in firearms without a license, among
other violations of United States law. Accordingly, this rule proposes
to clarify in the definition of ``dealer'' that purchases or sales of
firearms as a wholesale or retail dealer may occur either domestically
or internationally.
B. Definition of ``Engaged in the Business''--``Purchase'' and ``Sale''
To further clarify the regulatory definition of a dealer ``engaged
in the business'' with the predominant intent of earning a profit
through the repetitive purchase and resale of firearms in 27 CFR
478.11, this rule also proposes to define, based on common dictionary
definitions and relevant case law, the terms ``purchase'' and ``sale''
(and derivative terms thereof, such as ``purchases,'' ``purchasing,''
``purchased,'' and ``sells,'' ``selling,'' or ``sold''). This should
help clarify, through examples, how those terms apply to dealing in
firearms. Specifically, this rule proposes to define ``purchase'' (and
derivative terms thereof) as ``the act of obtaining a firearm in
exchange for something of
[[Page 61999]]
value,'' \44\ and the term ``sale'' (and derivative terms thereof,
including ``resale'') as ``the act of providing a firearm in exchange
for something of value.'' \45\ The term ``something of value'' includes
money, credit, personal property (e.g., another firearm \46\ or
ammunition \47\), a service,\48\ a controlled substance,\49\ or any
other medium of exchange \50\ or valuable consideration.'' \51\
---------------------------------------------------------------------------
\44\ This definition is consistent with the common meaning of
``purchase,'' which is ``to obtain (as merchandise) by paying money
or its equivalent.'' Webster's Third New International Dictionary
1844 (1971); see also Black's Law Dictionary 1491 (11th Ed. 2019)
(The term ``purchase'' means ``[t]he acquisition of an interest in
real or personal property by sale, discount, negotiation, mortgage,
pledge, lien, issue, reissue, gift, or any other voluntary
transaction.'').
\45\ This definition is consistent with the common meaning of
``sale,'' which is ``a contract transferring the absolute or general
ownership of property from one person or corporate body to another
for a price (as a sum of money or any other consideration).''
Webster's Third New International Dictionary 2003 (1971). The
related term ``resale'' is ``the act of selling again.'' Id. at
1929.
\46\ See, e.g., United States v. Gross, 451 F.2d 1355, 1360 (7th
Cir. 1971) (defendant ``had traded firearms [for other firearms]
with the object of profit in mind'').
\47\ See, e.g., United States v. Huffman, 518 F.2d 80 (4th Cir.
1975) (defendant traded large quantities of ammunition in exchange
for firearms).
\48\ See, e.g., United States v. 57 Miscellaneous Firearms, 422
F. Supp. 1066, 1070-71 (W.D. Mo. 1976) (defendant obtained the
firearms he sold or offered for sale in exchange for carpentry work
he performed).
\49\ See, e.g., Johnson v. Johns, No. 10-CV-904(SJF), 2013 WL
504446 (E.D.N.Y. Feb. 5, 2013) (on at least one occasion,
petitioner, who was engaged in the unlicensed dealing in firearms
through straw purchasers, compensated a straw purchaser with cocaine
base).
\50\ See, e.g., Focia, 869 F.3d at 1274 (defendant sold pistol
online to undercover ATF agent for 15 bitcoins).
\51\ The term ``medium of exchange'' generally means ``something
commonly accepted in exchange for goods and services and recognized
as representing a standard of value,'' and ``valuable
consideration'' is ``an equivalent or compensation having value that
is given for something (as money, marriage, services) acquired or
promised and that may consist either in some right, interest,
profit, or benefit accruing to one party or some responsibility,
forbearance, detriment, or loss exercised by or falling upon the
other party.'' Webster's Third New International Dictionary 1403,
2530 (1971). See, e.g., United States v. Berry, 644 F.2d 1034, 1036
(5th Cir. 1981) (defendant sold firearms in exchange for large
industrial batteries to operate his demolition business); United
States v. Reminga, 493 F. Supp. 1351, 1357 (W.D. Mich. 1980)
(defendant traded his car for three guns that he later sold or
traded).
---------------------------------------------------------------------------
Defining these terms to include any method of payment for a firearm
would clarify that persons cannot avoid licensing by, for instance,
bartering or providing or receiving services in exchange for firearms
with the predominant intent to earn pecuniary gain even where no money
is exchanged. It would also clarify that a person requires a license to
engage in the business of dealing in firearms even when the medium of
payment or consideration is unlawful, such as exchanging illicit drugs
or performing illegal acts for firearms, and that it is a distinct
crime to do so without a license.
C. Definition of ``Engaged in the Business'' as Applied to Auctioneers
Because the definitions of ``purchase'' and ``sale'' broadly
include services provided in exchange for firearms, both as defined by
common dictionaries and as proposed in this rule, the Department
further proposes to make clear that certain persons who provide
auctioneer services are not required to be licensed as dealers. ATF has
long interpreted the statutory definition of ``engaged in the
business'' as excluding auctioneers who provide only auction services
on commission by assisting in liquidating a personal collection of
firearms at an ``estate-type'' auction.\52\ The new definition in the
BSCA does not affect that determination. The Department is proposing to
incorporate this longstanding interpretation into the regulations while
otherwise clarifying the regulatory definition.
---------------------------------------------------------------------------
\52\ See ATF Q&A, Does an auctioneer who is involved in firearms
sales need a dealer's license?, <a href="https://www.atf.gov/firearms/qa/does-auctioneer-who-involved-firearms-sales-need-dealer-license">https://www.atf.gov/firearms/qa/does-auctioneer-who-involved-firearms-sales-need-dealer-license</a>
(July 10, 2020); ATF Federal Firearms Regulations Reference Guide, P
5300.4, Q&A L1, at 207 (2014); ATF FFL Newsletter, May 2001, at 3;
ATF Ruling 96-2, Engaging in the Business of Dealing in Firearms
(Auctioneers); 1 ATF FFL Newsletter, 1990, at 7; Letter for Editor,
CarPac Publishing Company, from Acting Assistant Director
(Regulatory Enforcement), ATF, CC-28,953 (July 26, 1979).
---------------------------------------------------------------------------
In this context, the auctioneer is generally providing services
only as an agent of the owner or executor of an estate who is
liquidating a personal collection. The firearms are within the estate's
control and the sales made on the estate's behalf. This limited
exclusion from the definition of ``dealer'' is conditioned on the
auctioneer not purchasing the firearms, taking possession of the
firearms prior to the auction, or consigning the firearms for sale. If
the auctioneer were to engage in any of that conduct, the auctioneer
would need to have a dealer's license because that person would be
engaged in the business of purchasing and reselling firearms to earn a
profit. An ``estate-type'' auction as described above differs from
liquidating a personal collection of firearms by means of a
``consignment-type'' auction, in which the auctioneer is paid to accept
firearms into a business inventory and then resells them in lots, or
over a period of time. In this ``consignment-type'' auction, the
auctioneer generally inventories, evaluates, and tags the firearms for
identification.\53\ Therefore, under ``consignment-type'' auctions, an
auctioneer would generally need to be licensed.
---------------------------------------------------------------------------
\53\ Id.
---------------------------------------------------------------------------
D. Presumptions That a Person Is ``Engaged in the Business''
The Department has observed through its enforcement efforts and
subject-matter expertise that persons who are engaged in certain
firearms purchase-and-sale activities are highly likely to be ``engaged
in the business'' of dealing in firearms at wholesale or retail. These
activities have been observed through a variety of criminal, civil, and
administrative enforcement actions and proceedings brought by the
Department, to include: (1) ATF inspections of prospective and existing
wholesale and retail dealers of firearms who are engaged, or intend to
engage in the business; \54\ (2) criminal investigations and
prosecutions of persons who engaged in the business of dealing in
firearms without a license; \55\ (3) civil and administrative actions
under 18 U.S.C. 924(d) to seize and forfeit firearms intended to be
sold by persons engaged in the business without a license; \56\ (4) ATF
cease and desist letters issued to prevent section 922(a)(1)(A)
violations; \57\ and (5) ATF administrative proceedings under 18 U.S.C.
923 to deny licenses to persons who willfully engaged in the business
of dealing in firearms without a license, or to revoke or deny renewal
of existing
[[Page 62000]]
licenses held by licensees who aided and abetted that misconduct.\58\
In addition, numerous courts have identified certain activities or
factors they deemed relevant to determining whether a person is
``engaged in the business'' even prior to Congress's decision to expand
the definition in the BSCA.\59\ This rule, therefore, proposes to
establish rebuttable presumptions in certain contexts to help
unlicensed persons, industry operations personnel, and others determine
when a person is presumed to be ``engaged in the business'' requiring a
dealer's license.
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\54\ In Fiscal Year 2022, for example, ATF conducted 11,156
qualification inspections of new applicants for a license, and 6,979
compliance inspections of active licensees. See ATF, Fact Sheet--
Facts and Figures for Fiscal Year 2022 (Jan. 2023), <a href="https://www.atf.gov/resource-center/fact-sheet/fact-sheet-facts-and-figures-fiscal-year-2022">https://www.atf.gov/resource-center/fact-sheet/fact-sheet-facts-and-figures-fiscal-year-2022</a>.
\55\ See footnotes 62 through 72, infra.
\56\ See, e.g., United States v. Four Hundred Seventy Seven
(477) Firearms, 698 F. Supp. 2d 890 (E.D. Mich. 2010) (civil
forfeiture of firearms intended to be sold from an unlicensed gun
store); United States v. One Bushmaster, Model XM15-E2 Rifle, No.
5:06-CV-156 (WDO), 2006 WL 3497899 (M.D. Ga. Dec. 5, 2006) (civil
forfeiture of firearms intended to be sold by an unlicensed person
who acquired an unusually large amount of firearms quickly for the
purpose of selling or trading them); United States v. Twenty Seven
(27) Assorted Firearms, No. SA-05-CA-407-XR, 2005 WL 2645010 (W.D.
Tex. Oct. 13, 2005) (civil forfeiture of firearms intended to be
sold at gun shows without a license).
\57\ Over the years, ATF has issued numerous letters warning
unlicensed persons not to continue to engage in the business of
dealing in firearms without a license, also called a ``cease and
desist'' letter. See, e.g., United States v. Kubowski, 85 F. App'x
686, 687 (10th Cir. 2003) (defendant served cease and desist letter
after selling five handguns and one rifle to undercover ATF agents).
\58\ See, e.g., In the Matter of Scott, Application Nos. 9-93-
019-01-PA-05780 and 05781 (Seattle Field Division, Apr. 3, 2018)
(denied applicant for license to person who purchased and sold
numerous handguns within one month; In the Matter of S.E.L.L.
Antiques, Application No. 9-87-035-01-PA-00725 (Phoenix Field
Division, Feb. 21, 2006) (denied applicant who repetitively sold
modern firearms from unlicensed storefront).
\59\ See footnote 20, supra, and accompanying text.
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These rebuttable presumptions would apply in civil and
administrative proceedings. While the criteria set forth in the
proposed rule may be useful to a court in a criminal case--for example,
to inform appropriate jury instructions regarding permissible
inferences \60\--the regulatory text makes clear that the presumptions
shall not apply to criminal cases.\61\
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\60\ While rebuttable presumptions may not be presented to a
jury in a criminal case, jury instructions may include, for example,
reasonable permissive inferences. See Francis v. Franklin, 471 U.S.
307, 314 (1985) (``A permissive inference suggests to the jury a
possible conclusion to be drawn if the [government] proves predicate
facts, but does not require the jury to draw that conclusion.'');
County Court of Ulster County v. Allen, 442 U.S. 140 (1979)
(upholding jury instruction that gave rise to a permissive inference
available only in certain circumstances, rather than a mandatory
conclusion); Baghdad v. Att'y Gen. of the U. S., 50 F.4th 386, 390
(3d Cir. 2022) (``Unlike mandatory presumptions, permissive
inferences . . . do not shift the burden of proof or require any
outcome. They are just an `evidentiary device . . . [that] allows--
but does not require--the trier of fact to infer' that an element of
a crime is met once basic facts have been proven beyond a reasonable
doubt.''); Patton v. Mullin, 425 F.3d 788 (10th Cir. 2005)
(upholding jury instruction that created a permissive inference
rather than a rebuttable presumption); United States v. Warren, 25
F.3d 890, 897 (9th Cir. 1994) (same); United States v. Washington,
819 F.2d 221 (9th Cir. 1987) (same); Lannon v. Hogan, 719 F.2d 518
(1st Cir. 1983) (same); United States v. Gaines, 690 F.2d 849 (11th
Cir. 1982) (same); cf., e.g., United States v. Antonoff, 424 F.
App'x 846, 848 (11th Cir. 2011) (district court relied on permissive
inference of current drug use in ATF's definition of ``unlawful
user'' in 27 CFR 478.11 to conclude that the defendant's drug use
was ``contemporaneous and ongoing'' sufficient to apply the 2K2.1
sentencing guideline); United States v. McCowan, 469 F.3d 386, 392
(5th Cir. 2006) (upholding application of a sentencing enhancement
based on the permissive inference of current drug use in 27 CFR
478.11); United States v. Stanford, No. 11-10211-01-EFM, 2012 WL
1313503 (D. Kan. Apr. 16, 2012) (upholding arrest under 18 U.S.C.
922(g)(3) relying, in part, on ATF's regulatory definition of
``unlawful user'').
\61\ See generally 2 Handbook of Fed. Evid. Sec. 303:4 (9th ed.
2020) (explaining Federal Rule of Evidence Standard 303(c), which
``provides that whenever the existence of a presumed fact against
the accused is submitted to the jury, the court should instruct the
jury that it may regard the basic facts as sufficient evidence of
the presumed fact but is not required to do so. In addition, if the
presumed fact establishes guilt, is an element of the offense, or
negatives a defense, the court should instruct the jury that its
existence on all the evidence must be proved beyond a reasonable
doubt. . . . The applicability and constitutionality of Standard
303(b) must be evaluated in light of the Supreme Court decisions in
County Court of Ulster v. Allen, Sandstrom v. Montana, and Francis
v. Franklin. As a result of these decisions it is clear, if it
wasn't before, that it is never permissible to shift to the
defendant the burden of persuasion to disprove an element of a crime
charged by means of a presumption, and of course, that a conclusive
or irrebuttable presumption operating against the criminal defendant
is also unconstitutional.'').
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The Department has considered, but not proposed in the NPRM, an
alternative that would have set a minimum numerical threshold of
firearms sold by a person within a certain period of time. That
approach has not been proposed for several reasons. First, while
selling large numbers of firearms or engaging or offering to engage in
frequent transactions may be highly indicative of business activity,
neither the courts nor the Department has recognized a set minimum
number of firearms purchased or resold that triggers the licensing
requirement. Similarly, there is no minimum number of transactions that
determines whether a person is ``engaged in the business'' of dealing
in firearms. Instead, the established approach for determining whether
an individual is ``engaged in the business'' is to look at the totality
of circumstances. Thus, even a single firearm transaction, or offer to
engage in a transaction, when combined with other evidence, may be
sufficient to require a license. For example, even under the previous
statutory definition, courts have upheld convictions for dealing
without a license when few firearms, if any, were actually sold,
provided other factors were also present, such as the person
representing to others a willingness and ability to repetitively
purchase firearms for resale. See, e.g., United States v. King, 735
F.3d 1098, 1107 n.8 (9th Cir. 2013) (upholding conviction where
defendant attempted to sell one firearm and represented that he could
purchase more for resale and noting that ``Section 922(a)(1)(A) does
not require an actual sale of firearms'').\62\ Second, in addition to
the tracing concerns expressed by ATF in response to comments on the
1979 ANPRM, a person could structure their transactions to avoid a
minimum threshold by spreading out their sales over time. Finally, the
Department does not believe there is a sufficient evidentiary basis,
without consideration of additional factors, to support a specific
minimum number of firearms bought or sold for a person to be considered
``engaged in the business.''
---------------------------------------------------------------------------
\62\ See Do I Need a License to Buy and Sell Firearms?, ATF
Publication 5310.2 (Jan. 2016). See also Nadirashvili, 655 F.3d at
120-21 (despite defendants' knowledge of only a single firearms
transaction, there was sufficient evidence to prove they had
``engaged in the business'' because they knew co-defendant held
himself out generally as a source of firearms, and was ready to
procure them for customers); United States v. Shan, 361 F. App'x 182
(2d Cir. 2010) (defendant sold two firearms within roughly a month
and acknowledged he had a source of supply for other weapons);
United States v. Shan, 80 F. App'x 31 (9th Cir. 2003) (sale of
weapons in one transaction where the defendant was willing and able
to find more weapons for resale); Murphy, 852 F.2d at 8 (``[T]his
single transaction was sufficiently large in quantity, price and
length of negotiation to constitute dealing in firearms.''); United
States v. Swinton, 521 F.2d 1255, 1259 (10th Cir. 1975) (``Swinton's
sale [of one firearm] to Agent Knopp, standing alone, without more,
would not have been sufficient to establish a violation of section
922(a)(1). That sale, however, when considered in conjunction with
other facts and circumstances related herein, established that
Swinton was engaged in the business of dealing in firearms. The
unrebutted evidence of the Government established not only that
Swinton considered himself to be and held himself out as a dealer,
but that, most importantly, he was actively engaged in the business
of dealing in guns.'' (internal citation omitted)).
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Rather than establishing a minimum threshold number of firearms
purchased or sold, this rule proposes to clarify that, absent reliable
evidence to the contrary, a person will be presumed to be engaged in
the business of dealing in firearms when the person:
(1) sells or offers for sale firearms, and also represents to
potential buyers or otherwise demonstrates a willingness and ability to
purchase and sell additional firearms; \63\
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\63\ See King, 735 F.3d at 1107 (defendant attempted to sell one
of the 19 firearms he had ordered, and represented to the buyer that
he was buying, selling, and trading in firearms and could procure
any item in a gun publication at a cheaper price).
---------------------------------------------------------------------------
(2) spends more money or its equivalent on purchases of firearms
for the purpose of resale than the person's reported taxable gross
inome during the applicable period of time; \64\
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\64\ See, e.g., Focia, 869 F.3d at 1282 (``And finally, despite
efforts to obtain Focia's tax returns and Social Security
information, agents found no evidence that Focia enjoyed any source
of income other than his firearms sales. This evidence
overwhelmingly demonstrates that Focia's sales of firearms were no
more a hobby than working at Burger King for a living could be
described that way.'').
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(3) repetitively purchases for the purpose of resale, or sells or
offers for sale firearms--
[[Page 62001]]
(A) through straw or sham businesses,\65\ or individual straw
purchasers or sellers; \66\ or
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\65\ See, e.g., MEW Sporting Goods, LLC. v. Johansen, 992 F.
Supp. 2d 665, 674-75 (N.D.W.V. 2014), aff'd, 594 F. App'x 143 (4th
Cir. 2015) (corporate entity disregarded where it was formed to
circumvent firearms licensing requirement); King, 735 F.3d at 1106
(defendant felon could not ``immunize himself from prosecution'' for
dealing without a license by ``hiding behind a corporate
charter.''); United States v. Fleischli, 305 F.3d 643, 652 (7th Cir.
2002) (``In short, a convicted felon who could not have legitimately
obtained a manufacturer's or dealer's license may not obtain access
to machine guns by setting up a sham corporation.''); National
Lending Group, L.L.C. v. Mukasey, No. CV 07-0024, 2008 WL 5329888
(D. Ariz. Dec. 19, 2008), aff'd, 365 F. App'x 747 (9th Cir. 2010)
(straw ownership of corporate pawn shops); Casanova Guns, Inc. v.
Connally, 454 F.2d 1320, 1322 (7th Cir. 1972) (``[I]t is well
settled that the fiction of a corporate entity must be disregarded
whenever it has been adopted or used to circumvent the provisions of
a statute.''); XVP Sports, LLC v. Bangs, No. 2:11CV379, 2012 WL
4329258, at *5 (E.D. Va. Sept. 17, 2012) (``unity of interest''
existed between firearm companies controlled by the same person);
Virlow LLC v. Bureau of Alcohol, Tobacco, Firearms & Explosives, No.
1:06-CV-375, 2008 WL 835828 (W.D. Mich. Mar. 28, 2008) (corporate
form disregarded where a substantial purpose for the formation of
the company was to circumvent the statute restricting issuance of
firearms licenses to convicted felons); Press Release, OPA, Utah
Business Owner Convicted of Dealing in Firearms without a License
and Filing False Tax Returns (Sept. 23, 2016), <a href="https://www.justice.gov/opa/pr/utah-business-owner-convicted-dealing-firearms-without-license-and-filing-false-tax-returns">https://www.justice.gov/opa/pr/utah-business-owner-convicted-dealing-firearms-without-license-and-filing-false-tax-returns</a> (defendant
illegally sold firearms under the auspices of a company owned by
another Utah resident).
\66\ See, e.g., Bryan v. United States, 524 U.S. 184, 189 (1998)
(defendant used straw purchasers to buy pistols in Ohio for resale
in New York); United States v. Ochoa, 726 F. App'x 651, 652 (9th
Cir. 2018) (``[W]hile the evidence demonstrated that Ochoa did not
purchase and sell the firearms himself, it was sufficient to
demonstrate that he had the princip[al] objective of making a profit
through the repetitive purchase and sale of firearms, even if those
purchases and sales were carried out by others.''); United States v.
Hosford, 843 F.3d 161, 163 (4th Cir. 2016) (defendant purchased
firearms through a straw purchaser who bought them at gun shows);
United States v. Paye, 129 F. App'x 567, 570 (11th Cir. 2005)
(defendant paid straw purchaser to buy firearms for him to sell);
United States v. Bryan, 122 F.3d 90, 92 (2d Cir. 1997) (defendant
enlisted the aid of two straw purchasers to buy guns for resale in
another state).
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(B) that cannot lawfully be purchased or possessed, including:
(i) stolen firearms (18 U.S.C. 922(j)); \67\
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\67\ See, e.g., United States v. Simmons, 485 F.3d 951 (7th Cir.
2007); United States v. Perkins, 633 F.2d 856 (8th Cir. 1981).
---------------------------------------------------------------------------
(ii) firearms with the licensee's serial number removed,
obliterated, or altered (18 U.S.C. 922(k); 26 U.S.C. 5861(i)); \68\
---------------------------------------------------------------------------
\68\ See, e.g., United States v. Ilarraza, 963 F.3d 1 (1st Cir.
2020); United States v. Fields, 608 F. App'x 806 (11th Cir. 2015);
United States v. Barrero, 578 F. App'x 884 (11th Cir. 2014); United
States v. Teleguz, 492 F.3d 80 (1st Cir. 2007); United States v.
Bostic, 371 F.3d 865 (6th Cir. 2004); United States v. Kitchen, 87
F. App'x 244 (3d Cir. 2004); United States v. Ortiz, 318 F.3d 1030
(11th Cir. 2003); United States v. Jackson, No. 97-6756, 1997 WL
618902 (4th Cir. Oct. 8, 1997); United States v. Rosa, 123 F.3d 94
(2d Cir. 1997); United States v. Twitty, 72 F.3d 228 (1st Cir.
1995); United States v. Collins, 957 F.2d 72 (2d Cir. 1992).
---------------------------------------------------------------------------
(iii) firearms imported in violation of law (18 U.S.C. 922(l), 22
U.S.C. 2778, or 26 U.S.C. 5844, 5861(k)); or
(iv) machineguns or other weapons defined as firearms under 26
U.S.C. 5845(a) that were not properly registered in the National
Firearms Registration and Transfer Record (18 U.S.C. 922(o); 26 U.S.C.
5861(d)); \69\
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\69\ See, e.g., United States v. Fridley, 43 F. App'x 830 (6th
Cir. 2002) (defendant purchased and sold unregistered machineguns);
United States v. Idarecis, No. 97-1629, 1998 WL 716568 (2d Cir. Oct.
9, 1998) (defendant converted rifles to automatic weapons and
obliterated the serial numbers on the firearms he sold).
---------------------------------------------------------------------------
(4) repetitively sells or offers for sale firearms--
(A) within 30 days after they were purchased; \70\
---------------------------------------------------------------------------
\70\ See, e.g., Press Release, OPA, Minnesota Man Indicted for
Dealing Firearms without a License (Feb. 18, 2016), https://
www.justice.gov/opa/pr/minnesota-man-indicted-dealing-firearms-
without-
license#:~:text=U.S.%20Attorney%20Andrew%20M.,least%20nine%20firearms
%20transaction%20records (defendant sold firearms he purchased
through online websites, and the average time he actually possessed
a gun before offering it for sale was only nine days); Press
Release, USAO, Ex-Pasadena Police Lieutenant Sentenced to One Year
in Federal Prison for Unlicensed Selling of Firearms and Lying on
ATF Form (Feb. 25, 2019), <a href="https://www.justice.gov/usao-cdca/pr/ex-pasadena-police-lieutenant-sentenced-one-year-federal-prison-unlicensed-selling">https://www.justice.gov/usao-cdca/pr/ex-pasadena-police-lieutenant-sentenced-one-year-federal-prison-unlicensed-selling</a> (defendant resold 79 firearms within six days
after he purchased them); United States v. D'Agostino, No. 10-20449,
2011 WL 219008 (E.D. Mich. Jan. 20, 2011) (some of the weapons
defendant sold at gun shows were purchased ``a short time
earlier'').
---------------------------------------------------------------------------
(B) that are new, or like new in their original packaging; \71\ or
---------------------------------------------------------------------------
\71\ See, e.g., United States v. Carter, 203 F.3d 187, 189 n.1
(2d Cir. 2000) (defendant admitted to willfully shipping and
transporting interstate eleven handguns in the course of engaging in
the business of dealing in firearms without a license that were
contained in their original boxes); United States v. Van Buren, 593
F.2d 125, 126 (9th Cir. 1979) (defendant's ``gun displays were
atypical of those of a collector because he exhibited many new
weapons, some in the manufacturers' boxes''); United States v.
Powell, 513 F.2d 1249 (8th Cir. 1975) (defendant acquired and sold
six ``new'' or ``like new'' shotguns over several months); United
States v. Posey, 501 F.2d 998, 1002 (6th Cir. 1974) (defendant
offered firearms for sale, some of them in their original boxes);
United States v. Day, 476 F.2d 562, 564, 567 (6th Cir. 1973) (60 of
the 96 guns to be sold by defendant were new handguns still in the
manufacturer's original packages).
---------------------------------------------------------------------------
(C) that are of the same or similar kind (i.e., make/manufacturer,
model, caliber/gauge, and action) and type (i.e., the classification of
a firearm as a rifle, shotgun, revolver, pistol, frame, receiver,
machinegun, silencer, destructive device, or other firearm); \72\
---------------------------------------------------------------------------
\72\ See, e.g., Press Release, USAO, FFL Sentenced for Selling
Guns to Unlicensed Dealers (May 27, 2022), <a href="https://www.justice.gov/usao-ndtx/pr/ffl-sentenced-selling-guns-unlicensed-dealers">https://www.justice.gov/usao-ndtx/pr/ffl-sentenced-selling-guns-unlicensed-dealers</a>
(defendant regularly sold large quantities of identical firearms to
unlicensed associates who sold them without a license); Shipley, 546
F. App'x at 453 (defendant sold mass-produced firearms of similar
make and model that were not likely to be part of a personal
collection).
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(5) who, as a former licensee (or responsible person acting on
behalf of the former licensee) sells or offers for sale firearms that
were in the business inventory of such licensee at the time the license
was terminated (i.e., license revocation, denial of license renewal,
license expiration, or surrender of license), and were not transferred
to a personal collection in accordance with 18 U.S.C. 923(c) and 27 CFR
478.125a; or
(6) who, as a former licensee (or responsible person acting on
behalf of a former licensee) sells or offers for sale firearms that
were transferred to a personal collection of such former licensee or
responsible person prior to the time the license was terminated,
unless: (A) the firearms were received and transferred without any
intent to willfully evade the restrictions placed on licensees by
chapter 44, title 18, of the United States Code; and (B) one year has
passed from the date of transfer to the personal collection.
Any one or a combination of the circumstances above gives rise to a
presumption in civil and administrative proceedings that the person is
engaged in the business of dealing in firearms and must be licensed
under the GCA. The activities set forth in these rebuttable
presumptions are not exhaustive of the conduct that may show that, or
be considered in determining whether, a person is engaged in the
business of dealing in firearms. Further, as noted above, while the
criteria may be useful to courts in criminal cases when instructing
juries regarding permissible inferences, the presumptions outlined
above shall not apply to criminal cases.
At the same time, the Department recognizes that certain
transactions are not likely to be sufficient to support a presumption
that a person is engaging in the business of dealing in firearms. For
this reason, the proposed rule also includes examples of when a person
is not presumed to be engaged in the business of dealing in firearms.
Specifically, under this proposed rule, a person would not be presumed
to be engaged in the business requiring a license as a dealer when the
person transfers firearms only as bona fide
[[Page 62002]]
gifts,\73\ or occasionally \74\ sells firearms only to obtain more
valuable, desirable, or useful firearms for their personal collection
or hobby, unless their conduct also demonstrates a predominant intent
to earn a profit.
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\73\ The Department interprets the term ``bona fide gift'' to
mean a firearm given in good faith to another person without
expecting any item, service, or anything of value in return. See
Form 4473, at 4, Instructions to Question 21.a. (Actual Transferee/
Buyer) (``A gift is not bona fide if another person offered or gave
the person . . . money, service(s), or item(s) of value to acquire
the firearm for him/her, or if the other person is prohibited by law
from receiving or possessing the firearm.''); ATF FFL Newsletter,
June 2021, at 2 (same).
\74\ While the GCA does not define the term ``occasional,'' that
term is commonly understood to mean ``of irregular occurrence;
happening now and then, infrequent.'' Letter for Borderview LLC,
from Chief, Firearms Industry Programs Branch, ATF (Oct. 14, 2015)
(citing Collins American English Dictionary (2015)) (addressing
persons engaged in the business of importing firearms).
---------------------------------------------------------------------------
The rebuttable presumptions set forth above are supported by the
Department's investigative and regulatory enforcement experience,\75\
as well as conduct that the courts have found to require a license even
before the BSCA expanded the definition of ``engaged in the business.''
Moreover, these presumptions are consistent with the case-by-case
analytical framework long applied by the courts in determining whether
a person has violated 18 U.S.C. 922(a)(1)(A) and 923(a) by engaging in
the business of dealing in firearms without a license even under the
pre-BSCA definition. The fundamental purpose of the GCA would be
severely undermined if persons were allowed to repetitively purchase
and resell firearms to predominantly earn a profit without conducting
background checks, keeping records, and otherwise complying with the
license requirements of the GCA simply because the effort needed to
conduct commerce in general has dramatically diminished. The Department
is therefore providing objectively reasonable standards for when a
person is presumed to be ``engaged in the business'' to strike an
appropriate balance that captures persons who should be licensed,
without limiting or regulating activity truly for the purposes of a
hobby or enhancing a personal collection.
---------------------------------------------------------------------------
\75\ See the discussion at the beginning of Section II.D of this
preamble. ``Presumptions that a Person is `Engaged in the Business.'
''
---------------------------------------------------------------------------
The first presumption stated above--that a person will be presumed
to be engaged in the business when the person sells or offers for sale
firearms, and also represents to potential buyers or otherwise
demonstrates a willingness and ability to purchase and sell additional
firearms--reflects that the definition of ``engaged in the business''
in 18 U.S.C. 921(a)(21)(C) does not require that a firearm actually to
be sold by a person so long as the person is holding themself out as a
dealer. This is because, under the definition of ``engaged in the
business'' in 18 U.S.C. 921(a)(21)(C), the ``repetitive purchase and
resale of firearms'' is the means through which the person intends to
engage in the business even if those firearms are not actually
repetitively purchased and resold.
The second presumption above--that a person is engaged in the
business when spending more money or its equivalent on purchases of
firearms for the purpose of resale than the person's reported taxable
gross income during the applicable period of time--reflects that
persons who spend more money or its equivalent on purchases of firearms
for resale than their reported gross income are likely to be earning
livelihood from those sales, which is even stronger evidence of an
intent to profit than merely supplementing one's income.\76\
Alternatively, the funds the person used to purchase the firearms may
have been derived from criminal activities, for example, if they were
provided by a co-conspirator to repetitively purchase and resell the
firearms without a license or for other criminal purposes, or the funds
were laundered from past illicit firearms transactions. Such illicit
and repetitive firearm purchase and sale activities do not require
proof of profit to prove the requisite intent under 18 U.S.C.
921(a)(22), which states that proof of profit is not required as to a
person who engages in the regular and repetitive purchase and
disposition of firearms for criminal purposes or terrorism.
---------------------------------------------------------------------------
\76\ Webster's Online Dictionary defines the term ``livelihood''
as ``means of support or subsistence.'' Livelihood, <a href="http://Merriam-Webster.com">Merriam-Webster.com</a>, <a href="https://www.merriam-webster.com/dictionary/livelihood">https://www.merriam-webster.com/dictionary/livelihood</a>
(last visited Aug. 25, 2023).
---------------------------------------------------------------------------
The first presumption underlying the third category listed above--
that a person is engaged in the business when repetitively purchasing,
reselling, or offering to sell firearms through straw or sham
businesses or individual straw purchasers or sellers--reflects that
persons who willfully engage in the business of dealing without a
license often do so to conceal their transactions by setting up straw
or sham businesses or hiring ``middlemen'' to conduct transactions on
their behalf.\77\ The second presumption under that category--that a
person is engaged in the business when repetitively purchasing,
reselling, or offering to sell firearms that cannot lawfully be
possessed--reflects that such firearms are actively sought by criminals
and earn higher profits for the illicit dealer. Such dealers will often
buy and sell stolen firearms and firearms with obliterated serial
numbers because such firearms are preferred by both sellers and buyers
to avoid background checks and crime gun tracing.\78\ They sometimes
sell unregistered National Firearms Act (``NFA'') weapons \79\ and
unlawfully imported firearms because those firearms are more difficult
to obtain, cannot be traced through the National Firearms Registration
and Transfer Record, and may sell for a substantial profit. Although
these presumptions do not directly address an individual's intent to
profit, they are supported by 18 U.S.C. 921(a)(22), which does not
require the government to prove an intent to profit where a person
repetitively purchases and disposes of firearms for criminal purposes.
This includes willfully engaging in the business of dealing in
contraband firearms. These presumptions are also implicitly supported
by 18 U.S.C. 923(c), which deems any firearm acquired or disposed of
with the purpose of willfully evading the restrictions placed on
licensed dealers under the GCA to be business inventory, not part of a
personal collection. Indeed, concealing the identity of the seller or
buyer of a firearm, or the identification of the firearm, undermines
the requirements imposed on legitimate dealers to conduct background
checks on actual purchasers (18 U.S.C. 922(t)) and maintain transaction
records (18 U.S.C.
[[Page 62003]]
923(g)(1)-(2)) through which firearms involved in crime can be traced.
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\77\ See footnotes 65 and 6666, supra; Abramski, 573 U.S. at 180
(``[C]onsider what happens in a typical straw purchase. A felon or
other person who cannot buy or own a gun still wants to obtain one.
(Or, alternatively, a person who could legally buy a firearm wants
to conceal his purchase, maybe so he can use the gun for criminal
purposes without fear that police officers will later trace it to
him.)'').
\78\ See footnote 68, supra; Twitty, 72 F.3d at 234 n.2
(defendant resold firearms with obliterated serial numbers, which
was ``probably designed in part to increase the selling price of the
weapons''); United States v. Hannah, No. CRIM.A.05-86, 2005 WL
1532534, at *3 (E.D. Pa. 2005) (defendant told buyers to obliterate
the serial numbers on the firearms so he would not ``get in
trouble'').
\79\ The National Firearms Act of 1934, 26 U.S.C. 7801 et seq.,
restricts certain firearms that Congress determined were
particularly dangerous ``gangster-type'' weapons, to include short-
barreled rifles and shotguns, machineguns, silencers, and
destructive devices. NFA provisions still refer to the ``Secretary
of the Treasury.'' See generally 26 U.S.C. ch. 53. However, the
Homeland Security Act of 2002, Public Law 107-296, 116 Stat. 2135,
transferred the functions of ATF from the Department of the Treasury
to the Department of Justice, under the general authority of the
Attorney General. 26 U.S.C. 7801(a)(2); 28 U.S.C. 599A(c)(1). Thus,
for ease of reference, this final rule refers to the Attorney
General throughout.
---------------------------------------------------------------------------
The first presumption under the fourth category listed above--
repetitive sales or offers for sale of firearms within 30 days from
purchase--reflect that firearms for a personal collection are not
likely to be repetitively sold within such a short period of time from
purchase.\80\ Likewise, under the second and third presumptions under
this category, persons who repetitively sell firearms in new condition
or in like-new condition in their original packaging, or firearms of
the same kind and type, are not likely to be selling such firearms from
a personal collection. Individuals who are bona fide collectors are
less likely to amass firearms of the same kind and type than amass
older, unique, or less common firearms that hold special interest. In
contrast, persons engaged in the business can earn the greatest profit
by selling firearms in the best (i.e., in a new) condition, or by
selling the particular makes and models of firearms (i.e., of the same
kind and type) that their customers want the most and would generate
the greatest profit.
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\80\ Further support for this 30-day presumption comes from the
fact that, while many retailers do not allow firearm returns, some
retailers and manufacturers do allow a 30-day period within which a
customer who is dissatisfied with a firearm purchased for a personal
collection or hobby can return or exchange the firearm. Dissatisfied
personal collectors and hobbyists--persons not intending to engage
in the business--are more likely to return new firearms rather than
incurring the time, effort, and expense to resell them within that
period of time. See, e.g., Cabela's Return Policy: Here's How it
Actually Works, <a href="http://rather-be-shopping.com">rather-be-shopping.com</a>, <a href="https://www.rather-be-shopping.com/blog/cabelas-return-policy/">https://www.rather-be-shopping.com/blog/cabelas-return-policy/</a> (Jan. 31, 2023) (``[I]f
they sell you a fully functioning gun, and you take it to the range,
and it will not eject a shell or casing or will not perform basic
functions, THEY TYPICALLY WILL exchange it. . . . Make sure you
fully test the firearm within 30 days of purchase as it will be MUCH
more difficult to exchange the gun after 30 days.''); LEARN ABOUT
THE 30 DAY MONEY BACK GUARANTEE! HOW TO RETURN YOUR FIREARM!,
<a href="http://Waltherarms.com">Waltherarms.com</a>, https://waltherarms.com/
guarantee#:~:text=Walther%20understands%20this%20and%20that,it%20is%2
0right%20for%20you/(last visited Aug. 10, 2023); Retail Policies,
<a href="http://centertargetsports.com">centertargetsports.com</a>, <a href="https://centertargetsports.com/retail-range/">https://centertargetsports.com/retail-range/</a>
(last visited Aug. 10, 2023) (``When you purchase any gun from
Center Target Sports, we guarantee your satisfaction. Use your gun
for up to 30 days and if for any reason you're not happy with your
purchase, return it to us within 30 days and receive a store credit
for the FULL purchase price.''); Warranty & Return Policy, Century
Arms (Mar. 6, 2019), <a href="https://www.centuryarms.com/media/wysiwyg/Warranty_and_Return_v02162021.pdf">https://www.centuryarms.com/media/wysiwyg/Warranty_and_Return_v02162021.pdf</a> (``Customer has 30 days to return
surplus firearms, ammunition, parts, and accessories for repair/
replacement if the firearm does not meet the advertised
condition.''); I Love You PEW 30 Day Firearm Guarantee, Alphadog
Firearms, <a href="https://alphadogfirearms.com/i-love-you-pew/">https://alphadogfirearms.com/i-love-you-pew/</a> (last visited
Aug. 10. 2023) (``Original purchaser has 30 calendar days to return
any new firearm purchased for store credit.''); Return Exceptions
Policy, Big 5 Sporting Goods, <a href="https://www.big5sportinggoods.com/static/big5/pdfs/Customer-Service-RETURN-EXCEPTIONS-POLICY-d.pdf">https://www.big5sportinggoods.com/static/big5/pdfs/Customer-Service-RETURN-EXCEPTIONS-POLICY-d.pdf</a>
(last visited Aug. 10, 2023) (``Firearm purchases must be returned
to the same store at which they were purchased. No refunds or
exchanges unless returned in the original condition within thirty
(30) days from the date of release.'').
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The presumption under the fifth category listed above--that a
former licensee, or responsible person acting on behalf of such former
licensee, is engaged in the business when they sell or offer for sale
firearms that were in the business inventory upon license termination--
recognizes the fact that the licensee likely intended to predominantly
earn a profit from the repetitive purchase and resale of those
firearms, not to acquire the firearms as a ``personal collection.''
Consistent with the GCA's plain language under section 921(a)(21)(C),
this presumption recognizes that former licensees who thereafter intend
to predominantly earn a profit from selling firearms that they had
previously purchased for resale can still be considered to be
``engaging in the business'' after termination of their license. The
GCA does not provide exceptions to the definition of ``engaged in the
business'' based on one's prior license status, even if the firearms
were purchased while the person had that license.\81\
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\81\ The Department is aware of non-binding dicta in United
States v. Shumann, 861 F.2d 1234, 1238 (11th Cir. 1988), in which
the court expressed its view that had the FOPA definition of
``engaged in the business'' been applicable (which the court ruled
it was not) it would have absolved the petitioner of liability in a
forfeiture action if, as he claimed, he was merely closing out his
gun business and liquidating his inventory, saying ``[w]hile the
government presented evidence of firearms sales by Schumann to
undercover BATF agents . . . there was no proof of firearms
purchases, much less a proven pattern of `repetitive purchase and
resale.' '' However, none of the amendments to the GCA made by FOPA
defined the terms ``collection'' or ``personal collection.'' The
fact remains that the firearms to be liquidated were repetitively
purchased for resale by the same person while licensed. And whether
a person is ``engaged in the business'' under post-BSCA section
921(a)(21)(C) is not dependent on the license status of the person
so engaged.
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The final presumption above--that the personal inventory of a
former licensee (or responsible person acting on behalf of the former
licensee) remains business inventory until one year has passed from
license termination or transfer to their personal collection--is
consistent with 18 U.S.C. 923(c) of the GCA, which deems firearms
transferred from a licensee's business inventory to their personal
collection as business inventory until one year after the transfer.\82\
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\82\ Even if one year has passed from the date of transfer,
business inventory transferred to a personal collection of a former
licensee (or responsible person acting on behalf of that licensee)
prior to termination of the license cannot be treated as part of a
personal collection if the licensee received or transferred those
firearms with the intent to willfully evade the restrictions placed
upon licensees by the GCA (e.g., willful violations as cited in a
notice of license revocation or denial of renewal). This is because,
under section 923(c), any firearm acquired or disposed of with
intent to willfully evade the restrictions placed upon licensees by
the GCA is automatically business inventory. Therefore, because the
firearms are statutorily deemed to be business inventory under
either of these circumstances, a former licensee (or responsible
person acting on behalf of such licensee) who sells such firearms is
presumed to be engaged in the business, requiring a license.
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The Department notes that these presumptions may be rebutted in an
administrative or civil proceeding with reliable evidence demonstrating
that a person is not ``engaged in the business'' of dealing in
firearms.\83\ If, for example, where there is reliable evidence that a
few collectible firearms were purchased from a licensed dealer where
``all sales are final'' and resold back to the licensee within 30 days
because the purchaser was not satisfied, the presumption that the
unlicensed reseller is engaged in the business may be rebutted.
Similarly, the presumption may be rebutted based on evidence that a
collector occasionally sells one specific kind and type of curio or
relic firearm to buy another one of the same kind and type that is in
better condition to ``trade-up'' or enhance the seller's personal
collection. Another example in which evidence may rebut the presumption
would be the occasional sale, loan, or trade of an almost-new firearm
in its original packaging to an immediate family member, such as for
their use in hunting, without the intent to earn a profit or to
circumvent the requirements placed on licensees.\84\
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\83\ An example of an administrative proceeding where rebuttable
evidence might be introduced would be where ATF denied a firearms
license application, pursuant to 18 U.S.C. 923(d)(1)(C) and (f)(2),
on the basis that the applicant was presumed under this rulemaking
to have willfully engaged in the business of dealing in firearms
without a license. An example of a civil case would be an asset
forfeiture proceeding, pursuant to 18 U.S.C. 924(d)(1), on the basis
that the seized firearms were intended to be involved in willful
conduct presumed to be engaging the business without a license under
this rulemaking.
\84\ See, e.g., Clark v. Scouffas, No. 99-C-4863, 2000 WL 91411
(N.D. Ill. 2000) (license applicant was not a ``dealer'' who was
``engaged in the business'' as defined under section 921(a)(21)(C)
where he only sold a total of three .38 Special pistols--two to
himself, and one to his wife, without any intent to profit).
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E. Definition of ``Personal Collection,'' ``Personal Collection of
Firearms,'' and ``Personal Firearms Collection''
The statutory definition of ``engaged in the business'' excludes
``a person who makes occasional sales, exchanges, or purchases of
firearms for the enhancement of a personal collection or
[[Page 62004]]
for a hobby, or who sells all or part of his personal collection of
firearms.'' 18 U.S.C. 921(a)(21)(C). To clarify this definitional
exclusion, this proposed rule would: (1) add a single definition for
the terms ``personal collection,'' ``personal collection of firearms,''
and ``personal firearms collection''; (2) explain how those terms apply
to licensees; and (3) make clear that licensees must follow the
verification and recordkeeping procedures in 27 CFR 478.94 and subpart
H, rather than using ATF Form 4473, when they acquire firearms from
other licensees, including a sole proprietor who transfers a firearm to
their personal collection in accordance with 27 CFR 478.125a.
Specifically, this rule proposes to define ``personal collection,''
``personal collection of firearms,'' and ``personal firearms
collection'' as ``personal firearms that a person accumulates for
study, comparison, exhibition, or for a hobby (e.g., noncommercial,
recreational activities for personal enjoyment such as hunting, or
skeet, target, or competition shooting).'' This reflects a common
definition of the terms ``collection'' and ``hobby.'' \85\ The phrase
``or for a hobby'' was adopted from 18 U.S.C. 921(a)(21)(C), which
excludes from the definition of ``engaged in the business'' firearms
acquired ``for'' a hobby. Also expressly excluded from the definition
of ``personal collection'' is ``any firearm purchased for resale or
made with the predominant intent to earn a profit'' because of their
inherently commercial nature. 18 U.S.C. 921(a)(21)(C).
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\85\ See Webster's Third New International Dictionary 444, 1075,
1686 (1971) (defining the term ``personal'' to include ``of or
relating to a particular person,'' ``collection'' to include ``an
assembly of objects or specimens for the purposes of education,
research, or interest'' and ``hobby'' as ``a specialized pursuit . .
. that is outside one's regular occupation and that one finds
particularly interesting and enjoys doing''); Webster's Online
Dictionary (2023) (defining the term ``personal'' to include ``of,
relating to, or affecting a particular person,'' ``collection'' to
include ``an accumulation of objects gathered for study, comparison,
or exhibition or as a hobby'', and ``hobby'' as a ``pursuit outside
one's regular occupation engaged in especially for relaxation'');
see also United States v. Idarecis, 164 F.3d 620 (2d Cir. 1998)
(Table) (``There is no case authority to suggest that there is a
distinction between the definition of a collector and of a
[personal] collection in the statute.'').
---------------------------------------------------------------------------
Under the GCA, 18 U.S.C. 923(c), and implementing regulations, 27
CFR 478.125(e) and 478.125a, a licensee who acquires firearms for a
personal collection is subject to certain additional requirements
before the firearms can become part of such a ``personal collection.''
\86\ Accordingly, the proposed rule further explains how that term
would apply to firearms acquired by a licensee (i.e., a person engaged
in the business as a licensed manufacturer, licensed importer, or
licensed dealer under the GCA), by defining ``personal collection,''
``personal collection of firearms,'' or ``personal firearms
collection,'' when applied to licensees, to include only firearms that
were: (1) acquired or transferred without the intent to willfully evade
the restrictions placed upon licensees by chapter 44, title 18, United
States Code; \87\ (2) recorded by the licensee as an acquisition in the
licensee's acquisition and disposition record in accordance with 27 CFR
478.122(a), 478.123(a), or 478.125(e) (unless acquired prior to
licensure and not intended for sale); \88\ (3) recorded as a
disposition from the licensee's business inventory to the person's
personal collection in accordance with 27 CFR 478.122(a), 478.123(a),
or 478.125(e); (4) stored separately from, and not commingled with the
business inventory, and appropriately identified as ``not for sale''
(e.g., by attaching a tag), if on the business premises; \89\ and (5)
maintained in such personal collection (whether on or off the business
premises) for at least one year from the date the firearm was so
transferred, in accordance with 18 U.S.C. 923(c) and 27 CFR
478.125a.\90\ These proposed parameters to define the term ``personal
collection'' as applied to licensees reflect the statutory and
regulatory requirements for personal collections in 18 U.S.C. 923(c)
and 27 CFR 478.122(a), 478.123(a), 478.125(e), and 478.125a.\91\ To
implement these changes, the rule also would make conforming changes by
adding references in 27 CFR 478.125a to the provisions that relate to
the acquisition and disposition recordkeeping requirements for
importers and manufacturers.
---------------------------------------------------------------------------
\86\ The GCA, 18 U.S.C. 923(c), and implementing regulations,
also require that all firearms disposed of from a licensee's
personal collection, including firearms acquired before the licensee
became licensed, that are held for at least one year and that are
sold or otherwise disposed of, must be recorded as a disposition in
a personal bound book. See 18 U.S.C. 923(c); 27 CFR 478.125a(a)(4).
\87\ See ATF Q&A, May a licensee create a personal collection to
avoid the recordkeeping and NICS background check requirements of
the GCA?, <a href="https://www.atf.gov/firearms/qa/may-licensee-create-personal-collection-avoid-recordkeeping-and-nics-background-check">https://www.atf.gov/firearms/qa/may-licensee-create-personal-collection-avoid-recordkeeping-and-nics-background-check</a>
(July 15, 2020).
\88\ See ATF Q&A, Does a licensee have to record firearms
acquired prior to obtaining the license in their acquisition and
disposition record?, <a href="https://www.atf.gov/firearms/qa/does-licensee-have-record-firearms-acquired-prior-obtaining-license-their-acquisition">https://www.atf.gov/firearms/qa/does-licensee-have-record-firearms-acquired-prior-obtaining-license-their-acquisition</a> (July 15, 2020); ATF Federal Firearms Regulations
Reference Guide, ATF P 5300.4, Q&A (F2) at 201 (2014) (``All
firearms acquired after obtaining a firearms license must be
recorded as an acquisition in the acquisition and disposition record
as business inventory.''); ATF FFL Newsletter, Feb. 2011, at 7
(``There may be occasions where a firearms dealer utilizes his
license to acquire firearms for his personal collection. Such
firearms must be entered in his permanent acquisition records and
subsequently be recorded as a disposition to himself in his private
capacity.''); ATF FFL Newsletter, Mar. 2006, at 7 (``[E]ven if a
dealer acquires a firearm from a licensee by completing an ATF Form
4473, the firearm must be entered in the transferee dealer's records
as an acquisition.'').
\89\ See ATF Q&A, May a licensee store personal firearms at the
business premises?, <a href="https://www.atf.gov/firearms/qa/may-licensee-store-personal-firearms-business-premises">https://www.atf.gov/firearms/qa/may-licensee-store-personal-firearms-business-premises</a> (July 15, 2020); ATF FFL
Newsletter, Feb. 2011, at 7; ATF FFL Newsletter, Mar. 2006, at 6;
ATF Industry Circular 72-30, Identification of Personal Firearms on
Licensed Premises Not Offered for Sale (Oct. 10, 1972).
\90\ See ATF Q&A, May a licensee maintain a personal collection
of firearms? How can they do so?, <a href="https://www.atf.gov/firearms/qa/may-licensee-maintain-personal-collection-firearms-how-can-they-do-so">https://www.atf.gov/firearms/qa/may-licensee-maintain-personal-collection-firearms-how-can-they-do-so</a> (July 15, 2020).
\91\ The existing regulations, 27 CFR 478.125(e) and 478.125a,
which require licensees to record the purchase of all firearms in
their business bound books, record the transfer of firearms to their
personal collection, and demonstrate that personal firearms obtained
before licensing have been held at least one year prior to their
disposition as personal firearms were upheld by the Fourth Circuit
in National Rifle Ass'n v. Brady, 914 F.2d 475, 482-83 (4th Cir.
1990) (``The regulations ensure that firearms kept in the personal
collection are bona fide personal firearms, and they minimize the
opportunity for licensees to evade the statute's recordkeeping
requirements for business firearms by simply designating those
firearms `personal firearms' immediately prior to their disposition.
. . . In addition, the record-keeping requirements contained in the
regulations provide a means for the [Attorney General] to verify
that personal firearms were actually held for a year by a licensee
prior to sale. Thus, we think the regulations at issue here are both
`rational and consistent with the statute.' ''). See also United
States v. Twelve Firearms, 16 F. Supp. 2d 738, 742 n.4 (S.D. Tex.
1998) (``[T]he United States appears to be correct that Claimant was
required to keep records of the firearms no matter whether they were
part of his business inventory, under Sec. 923(g)(1)(A), or whether
they were his own personal property, under Sec. 923(c).).''
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F. Definition of ``Responsible Person''
To accompany these changes, this rule also proposes to add a
regulatory definition of the term ``responsible person'' in 27 CFR
478.11, to mean ``[a]ny individual possessing, directly or indirectly,
the power to direct or cause the direction of the management, policies,
and business practices of a corporation, partnership, or association,
insofar as they pertain to firearms.'' This definition comes from 18
U.S.C. 923(d)(1)(B), and has long been reflected on the application for
license (Form 7) and other ATF publications since enactment of a
similar definition in the Safe Explosives Act in 2002.\92\ As
[[Page 62005]]
examples, this definition would not include store clerks or cashiers
who cannot make management or policy decisions with respect to firearms
(e.g., what company or store-wide policies and controls to adopt, which
firearms are bought and sold by the business, and who is hired to buy
and sell the firearms), even if their clerical duties include buying or
selling firearms for the business.
---------------------------------------------------------------------------
\92\ See 18 U.S.C. 841(s); Application for Federal Firearms
License, ATF Form 7, Instructions at 6 (5300.12); Gilbert v. ATF,
306 F. Supp. 3d 776, 781 (D. Md. 2018); Gossard v. Fronczak, 206 F.
Supp. 3d 1053, 1065 (D. Md. 2016), aff'd, 701 F. App'x 266 (4th Cir.
2017); ATF FFL Newsletter, Sept. 2011, at 6; ATF Letter to Dunham's
Sports (May 30, 2003).
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G. Definition of ``Predominantly Earn a Profit''
The BSCA broadened the definition of ``engaged in the business'' as
a dealer by substituting ``to predominantly earn a profit'' for ``with
the principal objective of livelihood or profit.'' 18 U.S.C.
921(a)(21)(C). It also defined the term ``to predominantly earn a
profit.'' 18 U.S.C. 921(a)(22). This rule is proposing to incorporate
those statutory changes, as discussed above.
This rule proposes to further implement these amendments by: (1)
clarifying that the ``proof of profit'' proviso also excludes ``the
intent to profit,'' thus making clear that it is not necessary for the
Federal Government to prove that a person intended to make a profit if
the person was dealing in firearms for criminal purposes or terrorism;
(2) clarifying that a person may have the predominant intent to profit
even if the person does not actually obtain pecuniary gain from selling
or disposing of firearms; and (3) establishing a presumption in civil
and administrative proceedings that certain conduct demonstrates the
requisite intent to ``predominantly earn a profit,'' absent reliable
evidence to the contrary.
These proposed regulatory amendments are consistent with the plain
language of the GCA. Neither the pre-BSCA definition of ``with the
principal objective of livelihood and profit'' nor the post-BSCA
definition of ``to predominantly earn a profit'' require the government
to prove that the defendant actually profited from firearms
transactions. See 18 U.S.C. 921(a)(22), (a)(23) (referring to ``the
intent underlying the sale or disposition of firearms''); Focia, 869
F.3d at 1282 (``The exact percentage of income obtained through the
sales is not the test; rather, . . . the statute focuses on the
defendant's motivation in engaging in the sales.'').\93\
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\93\ See also Valdes, 681 F. App'x at 877 (the government does
not need to show that the defendant ``necessarily made a profit from
dealing'') (citing United States v. Wilmoth, 636 F.2d 123, 125 (5th
Cir. 1981)); King, 735 F.3d at 1107 n.8 (Section 922(a)(1)(A) does
not require an actual sale of firearms); Allah, 130 F.3d at 43-44
(upholding jury instruction that selling firearms need not ``be a
significant source of income''); United States v. Mastro, 570
F.Supp. 1388 (E.D. Pa. 1983) (the government need not show that
defendant made or expected to make a profit) (citing cases); United
States v. Shirling, 572 F.2d 532, 534 (5th Cir. 1978) (``The statute
is not aimed narrowly at those who profit from the sale of firearms,
but rather broadly at those who hold themselves out as a source of
firearms.'').
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ATF's experience also establishes that certain conduct related to
the sale or disposition of firearms presumptively demonstrates that
primary motivation. In addition to conducting criminal investigations
of unlicensed firearms businesses under 18 U.S.C. 922(a)(1)(A), ATF has
for many decades observed through qualification and compliance
inspections how dealers who sell or dispose of firearms demonstrate a
predominant intent to obtain pecuniary gain, as opposed to other
intents, such as improving or liquidating a personal collection.
Based on this decades-long body of experience, the proposed rule
provides that, absent reliable evidence to the contrary, a person is
presumed to have the intent to ``predominantly earn a profit'' when the
person: (1) advertises, markets, or otherwise promotes a firearms
business (e.g., advertises or posts firearms for sale, including on any
website, establishes a website for selling or offering for sale their
firearms, makes available business cards, or tags firearms with sales
prices), regardless of whether the person incurs expenses or only
promotes the business informally; \94\ (2) purchases, rents, or
otherwise secures or sets aside permanent or temporary physical space
to display or store firearms they offer for sale, including part or all
of a business premises, table or space at a gun show, or display case;
\95\ (3) makes or maintains records, in any form, to document, track,
or calculate profits and losses from firearms purchases and sales; \96\
(4) purchases or otherwise secures merchant services as a business
(e.g., credit card transaction services, digital wallet for business)
through which the person makes or offers to make payments for firearms
transactions; \97\ (5) formally or informally purchases, hires, or
otherwise secures business security services (e.g., a central station-
monitored security system registered to a business,\98\ or guards for
security \99\) to
[[Page 62006]]
protect business assets or transactions that include firearms; (6)
formally or informally establishes a business entity, trade name, or
online business account, including an account using a business name on
a social media or other website, through which the person makes or
offers to make firearms transactions; \100\ (7) secures or applies for
a State or local business license to purchase for resale or to sell
merchandise that includes firearms; or (8) purchases a business
insurance policy, including any riders that cover firearms
inventory.\101\ Any of these nonexclusive, firearms-business-related
activities justifies a rebuttable presumption that the person has the
requisite intent to predominantly earn a profit from reselling or
disposing of firearms.
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\94\ See, e.g., United States v. Caldwell, 790 F. App'x 797, 799
(7th Cir. 2019) (defendant placed 192 advertisements on a website
devoted to gun sales); Valdes, 681 F. App'x at 878 (defendant handed
out business card); United States v. Pegg, 542 F. App'x 328 (5th
Cir. 2013) (defendant sometimes advertised firearms for sale in the
local newspaper); United States v. Crudgington, 469 F. App'x 823,
824 (11th Cir. 2012) (defendant advertised firearms for sale in
local papers, and tagged them with prices); United States v. Dettra,
238 F.3d 424, at *2 (6th Cir. 2000) (Table) (``Dettra's use of
printed business cards and his acceptance of credit payment provide
further reason to infer that he was conducting his firearms activity
as a profitable trade or business, and not merely as a hobby.'');
United States v. Norman, No. 4-10CR00059-JLH, 2011 WL 2678821, at *3
(E.D. Ark. 2011) (defendant placed advertisements in local newspaper
and on a website).
\95\ See, e.g., United States v. Wilkening, 485 F.2d 234, 235
(8th Cir. 1973) (defendant set up a glass display case and displayed
for sale numerous ordinary long guns and handguns that were not
curios or relics); United States v. Jackson, 352 F. Supp. 672, 676
(S.D. Ohio 1972), aff'd, 480 F.2d 927 (6th Cir. 1973) (defendant set
up glass display case, displaying numerous long guns and handguns
for sale which were not curios or relics); Press Release USAO,
Asheville Man Sentenced For Dealing Firearms Without A License,
(Jan. 20, 2017), <a href="https://www.justice.gov/usao-wdnc/pr/asheville-man-sentenced-dealing-firearms-without-license-0">https://www.justice.gov/usao-wdnc/pr/asheville-man-sentenced-dealing-firearms-without-license-0</a> (defendant sold
firearms without a license from his military surplus store).
\96\ See, e.g., United States v. White, 175 F. App'x 941, 942
(9th Cir. 2006) (``Appellant also created a list of all the firearms
he remembers selling and the person to whom he sold the firearm.'');
Dettra, 238 F.3d 424, at *2 (``Dettra carefully recorded the cost of
each firearm he acquired, enabling him to later determine the amount
needed to sell the item in a profitable manner.''); United States v.
Angelini, 607 F.2d 1305, 1307 (9th Cir. 1979) (defendant kept sales
slips or invoices).
\97\ See, e.g., King, 735 F.3d at 1106-07 (defendant
incorporated and funded firearms business ``on behalf'' of friend
whose American citizenship enabled business to obtain Federal
firearms license. He then misappropriated company's business
account, using falsified documentation to set up credit accounts);
Dettra, 238 F.3d 424, at *2 (defendant accepted credit card
payments).
\98\ Numerous jurisdictions require all persons with alarms or
security systems designed to seek a police response to be registered
with or obtain a permit from local police and pay the requisite fee.
See, e.g., Albemarle County (Virginia) Code Sec. 12-102(A);
Arlington County (Virginia) Code Sec. 33-10; Cincinnati (Ohio) City
Ord. Ch. 807-1-A4 (2); City of Coronado (California) Code Sec.
40.42.050)(A); Irvine (California) Code Sec. 4-19-105; Kansas City
(Missouri) Code Sec. 50-333(a); Larimer County (Colorado) Ord.
Sec. 3(A); Lincoln (Nebraska) Mun. Code Sec. 5.56.030(a); Los
Angeles (California) Mun. Code Sec. 103.206(b); Loudoun County
(Virginia) Code Sec. 655.03(a); Mobile (Alabama) Code Sec. 39-
62(g)(1); Montgomery County (Maryland) Code Sec. 3A-3; Prince
William County (Virginia) Code Sec. 2.5.25(a); Rio Rancho (New
Mexico) Mun. Code Sec. 97.04(A); Scottsdale (Arizona) Code Sec. 3-
10(a); Tempe (Arizona) Code Sec. 22-76; Washington County (Oregon)
Code Sec. 8.12.040; West Palm Beach (Florida) Code Sec. 46-32(a);
Wilmington (Delaware) Code Sec. 10-38(c); Woburn (Massachusetts)
Code Title 11 Sec. 8-18. Due to the value of the inventory and
assets they protect, for profit businesses are more likely to
maintain, register, and pay for these types of alarms rather than
individuals seeking to protect personal property. See generally What
is a Central Station Alarm Monitoring System?, <a href="http://agmonitoring.com">agmonitoring.com</a>
(July 10, 2019), <a href="https://www.agmonitoring.com/blog/industry-news/what-is-a-central-station-monitoring-system">https://www.agmonitoring.com/blog/industry-news/what-is-a-central-station-monitoring-system</a>; Central Station Service
Certification, <a href="http://UL.com">UL.com</a>, https://www.ul.com/resources/central-station-
service-certification#:~:text=Station%20Service%20Certification-
,Overview,and%20initiates%20the%20appropriate%20response.
\99\ See, e.g., United States v. De La Paz-Rentas, 613 F.3d 18,
22-23 (1st Cir. 2010) (defendant hired as bodyguard for protection
in an unlawful firearms transaction).
\100\ See, e.g., United States v. Gray, 470 F. App'x at 469
(defendant sold firearms through his sporting goods store,
advertised his business using signs and flyers, and displayed guns
for sale, some with tags).
\101\ See, e.g., United States v. Kish, 424 F. App'x 398, 404
(6th Cir. 2011) (defendant could only have 200 firearms on display
because of insurance policy limitations).
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This set of rebuttable presumptions that establishes an intent ``to
predominantly earn a profit''--one of the elements of the definition of
``engaged in the business''--is separate from the set of presumptions
that establishes a person meets the definition of ``engaged in the
business.'' This second set of presumptions that addresses only intent
``to predominantly earn a profit'' may be used to independently
establish the requisite intent to profit in a particular proceeding. As
with the ``engaged in the business'' presumptions, the activities set
forth in these intent presumptions are not exhaustive of the conduct
that may show that, or be considered in determining whether, a person
actually has the requisite intent ``to predominantly earn a profit.''
There are many other fact patterns that do not fall within the specific
conduct that presumptively requires a license under this proposed rule
(e.g., firearms that were repetitively resold after 30 days from
purchase, or that were not in a like-new condition), but that reveal
one or more preparatory steps that presumptively demonstrate a
predominant intent to earn a profit from firearms transactions. Again,
none of these presumptions apply to criminal cases, but could be useful
to courts in criminal cases, for example, to inform appropriate jury
instructions regarding permissible inferences. These presumptions are
supported by the Department's investigative and regulatory efforts and
experience as well as conduct that the courts have relied upon in
determining whether a person was required to be licensed as a dealer in
firearms even before the BSCA expanded the definition.
H. Disposition of Business Inventory After Termination of License
One public safety issue that ATF has encountered over the years
relates to former licensees who have improperly liquidated their
business inventory of firearms without performing required background
checks or maintaining required records after the license was revoked,
denied renewal, or otherwise terminated (e.g., license expiration or
surrender of license).\102\ Sometimes former licensees even continue to
acquire more firearms for resale (``restocking'') after license
termination, a practice that is clearly inconsistent with the concept
of ``liquidation.'' These activities, in turn, have resulted in
numerous firearms being sold by former licensees (including those whose
licenses have been revoked or denied due to willful GCA violations) to
potentially prohibited persons without any ability to trace those
firearms if later used in crime.\103\
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\102\ The problem of licensees liquidating a former licensee's
business firearms as firearms from their ``personal collections''
without background checks or recordkeeping has been referred to by
some advocacy groups and members of Congress as the ``fire-sale
loophole.'' See Dan McCue, Booker Bill Takes Aim at Gun Fire Sale
Loophole, The Well News (Sept. 9, 2022), <a href="https://www.thewellnews.com/guns/booker-bill-takes-aim-at-gun-fire-sale-loophole/">https://www.thewellnews.com/guns/booker-bill-takes-aim-at-gun-fire-sale-loophole/</a>; Shira Toeplitz, Ackerman proposes gun-control bill to
close `firesale loophole', Politico (Jan. 12, 2011), <a href="https://www.politico.com/blogs/on-congress/2011/01/ackerman-proposes-gun-control-bill-to-close-firesale-loophole-032289">https://www.politico.com/blogs/on-congress/2011/01/ackerman-proposes-gun-control-bill-to-close-firesale-loophole-032289</a>; Annie Linskey,
Closed store is a source of guns, The Baltimore Sun (Apr. 15, 2008),
<a href="https://www.baltimoresun.com/news/bs-xpm-2008-04-15-0804150118-story.html">https://www.baltimoresun.com/news/bs-xpm-2008-04-15-0804150118-story.html</a> (after revocation of license, a dealer transferred around
700 guns to his ``personal collection'' and continued to sell them
without recordkeeping).
\103\ See, e.g., Dettra, 238 F.3d 424, at *2 (defendant
continued to deal in firearms after license revocation); Press
Release OPA, Gunsmoke Gun Shop Owner and Former Discovery Channel
Star Indicted and Arrested for Conspiracy, Dealing in Firearms
without a License and Tax Related Charges (Feb. 11, 2016), <a href="https://www.justice.gov/opa/pr/gunsmoke-gun-shop-owner-and-former-discovery-channel-star-indicted-and-arrested-conspiracy">https://www.justice.gov/opa/pr/gunsmoke-gun-shop-owner-and-former-discovery-channel-star-indicted-and-arrested-conspiracy</a> (defendant continued
to deal in firearms at a different address after he surrendered his
FFL due to his violations of the Federal firearms laws and
regulations); Kish, 424 F. App'x at 405 (defendant continued to sell
firearms after revocation of license); Gilbert v. Bangs, 813 F.
Supp. 2d 669, 672 (D. Md. 2011), aff'd 481 F. App'x 52 (4th Cir.
2012) (license denied to applicant who willfully engaged in the
business after license revocation); ATF Letter to AUSA (Mar. 13,
1998) (advising that seized firearms offered for sale were not
deemed to be part of a ``personal collection'' after surrender of
license).
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For this reason, the proposed rule also would revise the
regulation's sections on discontinuing business, 27 CFR 478.57 and
478.78, to clarify statutory requirements regarding firearms that
remain in the possession of a former licensee (or a responsible person
of the former licensee) at the time the license is terminated. Again,
firearms that were in the business inventory of a former licensee at
the time the license was terminated (i.e., license revocation, denial
of license renewal, license expiration, or surrender of license) and
that remain in the possession of the licensee (or a responsible person
acting on behalf of the former licensee), are not part of a ``personal
collection.'' While 18 U.S.C. 921(a)(21)(C) allows an unlicensed person
to ``sell all or part of his personal collection'' without being
considered ``engaged in the business,'' in this context, these firearms
were purchased by the former licensee as business inventory and were
not accumulated by that person for study, comparison, exhibition, or
for a hobby.
Also, firearms that were transferred by a former licensee to a
personal collection prior to the time the license was terminated cannot
be considered part of a personal collection unless one year has passed
from the date the firearm was transferred into the personal collection
before the license was terminated. This gives effect to 18 U.S.C.
923(c), which requires that all firearms acquired by a licensee be
maintained as part of a personal collection for a period of at least
one year before they lose their status as business firearms.
Under amended 27 CFR 478.57 (discontinuance of business) and 27 CFR
478.78 (operations by licensee after notice), as proposed, once a
license has been terminated (i.e., license revocation, denial of
license renewal, license expiration, or surrender of license), the
former licensee will have 30 days, or such additional period designated
by the Director for good cause, to either: (1) liquidate any remaining
business inventory by selling or otherwise disposing of the firearms to
a licensed importer, licensed manufacturer, or licensed dealer for
sale, auction, or pawn redemption in accordance with this part; or (2)
transfer the remaining business inventory to a personal collection of
the former licensee (or a responsible person of the former licensee),
provided the recipient is not prohibited by law from receiving or
possessing firearms. Except for the sale of remaining inventory to a
licensee within the 30-day period (or designated additional period), a
former licensee (or responsible person of such licensee)
[[Page 62007]]
who resells any such inventory, including business inventory
transferred to a personal collection, would be subject to the same
presumptions in 27 CFR 478.11 (definition of ``engaged in the
business'' as a dealer other than a gunsmith or pawnbroker) that apply
to a person who repetitively purchased those firearms for the purpose
of resale.
The 30-day period from license termination for a former licensee to
transfer the firearms to either another licensee or to a personal
collection is derived from the disposition of records requirement in
the GCA, 18 U.S.C. 923(g)(4), which is a reasonable period for that
person to wind down operations after discontinuance of business without
acquiring new firearms.\104\ That period of liquidation may be extended
by the Director for good cause, such as to allow pawn redemptions if
required by State, local, or Tribal law. However, former licensees (or
responsible persons of such licensees) who choose not to sell the
remaining business inventory to a licensee within the 30-day period (or
designated additional period), and who continue to sell those firearms,
are not permitted under the GCA to engage in the business of dealing in
firearms without a license. Former licensees (or responsible person)
who sell business inventory after that period (or within that period to
unlicensed persons), or within one year from transfer to a personal
collection, have no special legal exemptions that give them greater
privileges to conduct business than a licensee.
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\104\ See also 27 CFR 478.57 (requiring the owner of a
discontinued or succeeded business to notify ATF of such
discontinuance or succession within 30 days), and 478.127 (requiring
discontinued businesses to turn in records within 30 days).
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Moreover, a former licensee is not permitted to continue to engage
in the business of importing, manufacturing, or dealing in firearms by
importing or manufacturing additional firearms for purposes of sale or
distribution, or purchasing additional firearms for resale (i.e.,
``restocking'') without a license. Therefore, a former licensee (or
responsible person) is subject to the same presumptions in 27 CFR
478.11 (definition of ``engaged in the business'' as a dealer other
than a gunsmith or pawnbroker) that apply to persons who sell firearms
that were repetitively purchased with the predominant intent to earn a
profit and any sales by such a person will be closely scrutinized by
ATF on a case-by-case basis.
I. Transfer of Firearms Between FFLs and Form 4473
Finally, to ensure the traceability of all firearms acquired by
licensees from other licensees, the proposed rule would make clear that
licensees cannot satisfy their obligations under 18 U.S.C. 923(g)(1)(A)
by completing a Form 4473 when selling or otherwise disposing of
firearms to another licensed importer, licensed manufacturer, or
licensed dealer, or a curio or relic to a licensed collector, including
a sole proprietor licensee who transfers the firearm to their personal
collection in accordance with 27 CFR 478.125a.\105\ Form 4473 was not
intended for use by licensees when transferring firearms to other
licensees or by a sole proprietor transferring to their personal
collection.
---------------------------------------------------------------------------
\105\ See ATF FFL Newsletter, Mar. 2006, at 7 (``A dealer who
purchases a firearm from another licensee should advise the
transferor licensee of his or her licensed status so the transferor
licensee's records may accurately reflect that this is a transaction
between licensees. An ATF Form 4473 should not be completed for such
a transaction, because this form is used only for a disposition to a
nonlicensee.'').
---------------------------------------------------------------------------
Pursuant to 18 U.S.C. 926(a)(1) and 27 CFR 478.94, when a licensee
transfers a firearm to another licensee, the transferor must first
verify the recipient's identity and license status by examining a
certified copy of the recipient's license and recording the transfer as
a disposition to that licensee in the bound book record. In turn, the
recipient licensee must record the receipt as an acquisition in their
bound book record. See 27 CFR 478, subpart H. If a recipient licensee
were to complete a Form 4473 for the purchase of a firearm, but not
record that receipt in their bound book record asserting it is a
``personal firearm,'' then tracing efforts pursuant to the GCA could be
hampered if the firearm was later used in a crime.
However, this clarification that FFLs may not satisfy their
obligations by completing a Form 4473 to transfer firearms between
themselves would not include dispositions by a licensed legal entity
such as a corporation, LLC, or partnership, to the personal collection
of a responsible person of such an entity. This is because when an
individual responsible person does not acquire a firearm as an employee
on behalf of the business entity, it results in a change in dominion or
control, or ``transfer,'' subject to all GCA requirements.\106\ Such an
entity, including a corporation or partnership, must therefore use a
Form 4473, NICS check, and disposition record entry when transferring a
firearm to one of its individual officers (or partners, in the case of
a partnership) for their personal use.\107\
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\106\ See ATF Ruling 2010-1 (permanently assigning a firearm to
a specific employee for personal use is considered a ``transfer''
that would trigger the recordkeeping and NICS background check
requirements).
\107\ See ATF Q&A, Does an officer or employee of an entity that
holds a federal firearms license, such as a corporation, have to
undergo a NICS check when acquiring a firearm for their own personal
collection?, <a href="https://ww.atf.gov/firearms/qa/does-officer-or-employee-entity-holds-federal-firearms-license-such-cororation-have">https://ww.atf.gov/firearms/qa/does-officer-or-employee-entity-holds-federal-firearms-license-such-cororation-have</a>
(May 22, 2020); 2 ATF FFL Newsletter, Sept. 2013, at 4.
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III. Statutory and Executive Order Review
A. Executive Orders 12866, 13563, and 14094
Executive Order 12866 (``Regulatory Planning and Review'') directs
agencies to assess the costs and benefits of available regulatory
alternatives and, if regulation is necessary, to select regulatory
approaches that maximize net benefits (including potential economic,
environmental, public health and safety effects, distributive impacts,
and equity). Executive Order 13563 (``Improving Regulation and
Regulatory Review'') emphasizes the importance of quantifying both
costs and benefits, of reducing costs, of harmonizing rules, and of
promoting flexibility. Executive Order 14094 (``Modernizing Regulatory
Review'') amends section 3(f) of Executive Order 12866.
The Office of Management and Budget (``OMB'') has determined that
this proposed rule is a ``significant regulatory action'' under
Executive Order 12866, as amended by Executive Order 14094, though it
is not a section 3(f)(1) significant action. Accordingly, the proposed
rule has been reviewed by OMB. While portions of this proposed rule
merely incorporate the BSCA's statutory definitions into ATF's
regulations, this rulemaking, if finalized, may result in additional
unlicensed persons becoming FFLs if the unlicensed persons intend to
regularly purchase and resell firearms to predominantly earn a profit.
1. Need for Federal Regulation
This proposed rule would implement the BSCA by incorporating
statutory definitions into ATF's regulations and clarifying the
criteria for determining when a person is ``engaged in the business''
requiring a license to deal in firearms. The rulemaking is necessary to
implement a new statutory provision on being engaged in the business as
a wholesale or retail dealer; to clarify prior regulatory provisions
that relate to that topic; and to codify practices and policies on that
issue. In addition to establishing specific, easy-to-follow standards
regarding when buying and selling firearms presumptively crosses the
threshold into being ``engaged in the
[[Page 62008]]
business,'' the rule also would recognize that individuals are allowed
by law to occasionally buy and sell firearms for the enhancement of a
personal collection or a legitimate hobby without the need to obtain a
license.
2. Population
This proposed rule implements a statutory requirement that affects
persons who repetitively purchase and resell (including bartering)
firearms and are required to be, but are not currently, licensed. As
described in the preamble of this NPRM, these may be persons who
purchase, sell, or transfer firearms from places other than traditional
brick-and-mortar stores, such as at a gun show or event, flea market,
auction house, or gun range or club; at one's home; by mail order, or
over the internet; through the use of other electronic means (e.g., an
online broker, online auction, text messaging service, social media
raffle, or website); or at any other domestic or international public
or private marketplace or premises. A person may be required to have a
license to deal in firearms regardless of where, or the medium through
which, they purchase or sell (or barter) firearms, including locations
other than a traditional brick and mortar store.
The GCA prohibits ATF from prescribing regulations that establish
any ``system of registration'' of firearms, firearms owners, or
firearms transactions or dispositions.\108\ Furthermore, because those
willfully engaged in the business of dealing in firearms without a
license are violating Federal law, these individuals often take steps
to avoid detection by law enforcement, making it additionally difficult
for ATF to precisely estimate the population. Therefore, for purposes
of this analysis, ATF used information gleaned from ArmsList, an online
broker website that facilitates the sales or bartering of firearms, as
a means of estimating a population of unlicensed persons selling
firearms using online resources.\109\ ATF focused its efforts on
estimating an affected population using ArmsList since that website is
considered to be the largest source for unlicensed persons to sell
firearms on the internet.\110\ Out of a total listing of 30,806 entries
in the ``private party'' category (unlicensed users) on ArmsList, ATF
viewed a sample of 379 listings, and found that a given seller on
ArmsList had an average of three listings per seller.\111\ Based on
approximately 30,806 ``private party'' (unlicensed) sales listings on
ArmsList, ATF estimates that there are approximately 12,270 unlicensed
persons who sell on that website alone, selling an average of three
firearms per user.\112\ ATF estimates that ArmsList may hold
approximately 50 percent of the market share among websites that
unlicensed sellers may frequent. This means the 12,270 estimated
unlicensed persons on ArmsList would be about half, and the estimated
number of unlicensed sellers on all such websites would be
approximately 24,540 nationwide. The estimate of ArmsList's market
share is based on ATF Firearms Industry Programs Branch (``FIPB'')
subject matter expert (``SME'') opinion, news reports,\113\ and public
web traffic lists.\114\
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\108\ 18 U.S.C. 926(a).
\109\ See <a href="http://www.Armslist.com">www.Armslist.com</a>.
\110\ Colin Lecher & Sean Campbell, The Craigslist of Guns:
Inside Armslist, the online `gun show that never ends', The Verge
(Jan. 16, 2020), <a href="https://www.theverge.com/2020/1/16/21067793/guns-online-armslist-marketplace-craigslist-sales-buy-crime-investigation">https://www.theverge.com/2020/1/16/21067793/guns-online-armslist-marketplace-craigslist-sales-buy-crime-investigation</a>
(``Over the years, [Armslist] has become a major destination for
firearm buyers and sellers.''); Tasneem Raja, Semi-Automatics
Without A Background Check Can Be A Click Away, NPR (June 17, 2016),
<a href="https://www.npr.org/sections/alltechconsidered/2016/06/17/482483537/semi-automatic-weapons-without-a-background-check-can-be-just-a-click-away">https://www.npr.org/sections/alltechconsidered/2016/06/17/482483537/semi-automatic-weapons-without-a-background-check-can-be-just-a-click-away</a> (``Armslist isn't the only site of its kind, though it is
considered to be the biggest and most popular.'').
\111\ A sample of 379 listings from an estimated population of
30,806 listings (viewed between Mar. 1 and 2, 2023), using a 95
percent confidence level and a confidence interval of 5. See Sample
Size Calculator- Confidence Level, Confidence Interval, Sample Size,
Population Size, Relevant Population, <a href="https://www.surveysystem.com/sscalc.htm">https://www.surveysystem.com/sscalc.htm</a>.
\112\ 12,270 unlicensed individuals = 30,806 ``private party''
unlicensed listings on ArmsList/2.51 average listings per user.
\113\ See footnote 110, supra.
\114\ Similar web profile and market share lists are available
at <a href="https://www.similarweb.com/website/armslist.com/#overview">https://www.similarweb.com/website/armslist.com/#overview</a>.
---------------------------------------------------------------------------
To better estimate both online and offline sales, ATF assumed,
based on best professional judgment of FIPB SMEs and with limited
available information, that the national online marketplace estimate
above may represent 25 percent of the total national firearms market,
which would also include in-person, local, or other offline
transactions like flea markets, State-wide exchanges, or websites
within each of the 50 States.
While this would bring the total estimated market to approximately
98,160 unlicensed sellers,\115\ this figure would need to be reduced by
the estimated subset of this population of persons who occasionally
sell their firearms without needing to obtain a license (e.g., as part
of their hobby or enhancement of their personal collection). Also,
based on limited available information, ATF's best, very conservative
assessment from FIPB SMEs is that at least 25 percent of the estimated
total number of unlicensed sellers may be considered engaged in the
business and would subsequently need to become an FFL in order to
continue making their repetitive sales of firearms. The actual number
may be higher, but ATF does not have data to support a higher number.
Using the information gleaned from ArmsList, this means that 24,540 is
the estimated number of unlicensed persons that may be considered
engaged in the business and affected by this proposed rule.
---------------------------------------------------------------------------
\115\ The online estimate of 24,540 = at least 25 percent of
national firearms market. So, 100 percent of the firearms market
would be 4 * 24,540 = 98,160.
---------------------------------------------------------------------------
Because there is no definitive information, the actual number of
total unlicensed sellers may be higher. Therefore, ATF also calculated
a second possible estimate using information from a published survey by
the Russell Sage Foundation regarding a similar, but differently
sourced estimated population of private sellers of firearms.\116\ Based
on the 2020 U.S. Census, there are 258.3 million adults (over 18).\117\
ATF used the U.S. Census as a basis for the population and also
percentages from ``The Stock and Flow of U.S. Firearms: Results from
the 2015 National Firearms Survey,'' published by the Russell Sage
Foundation.\118\ This survey showed that 22 percent of the U.S. adult
population owns at least one firearm (56.84 million adults), and of
this, five percent transferred firearms (2.84 million). Of the five
percent that transferred, 71 percent sold a firearm (2.02 million). Of
those that sold a firearm, 51 percent (1.03 million) sold through
various mediums (e.g., online, pawnshop, gun shop) other than through
or to a family member or friend (which likely would not be affected by
this rulemaking).\119\ Of the five percent
[[Page 62009]]
that transferred a firearm, ten percent traded or bartered (284,178).
Thus, taking the 51 percent that sold (1.03 million) and the ten
percent (284,178) that transferred by trading or bartering, the total
number of unlicensed persons that may transfer a firearm, based on this
survey, in any given timeframe is 1.31 million. Of the 1.31 million
unlicensed persons selling, trading, or bartering firearms, ATF
continues to assume, based on the best, very conservative assessment
from SME experts, that 25 percent (or 328,296 unlicensed individuals)
may be engaged in the business with an intent to profit. In sum, based
on these limited sources of information, ATF estimates either 24,540 or
328,296 could represent an estimate of unlicensed persons that may be
engaged in the business and affected by this proposed rule.
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\116\ Azrael, D., Hepburn, L., Hemenway, D., & Miller, M.
(2017). The stock and flow of U.S. firearms: Results from the 2015
National Firearms Survey. The Russell Sage Foundation Journal of the
Social Sciences, 3(5), pp 38-57 (pp. 39 and 51). <a href="https://www.jstor.org/stable/10.7758/rsf.2017.3.5.02?seq=1">https://www.jstor.org/stable/10.7758/rsf.2017.3.5.02?seq=1</a>.
\117\ U.S. Census, Stella U. Ogunwole, et al., U.S. Adult
Population Grew Faster Than Nation's Total Population From 2010 to
2020, U.S. Census (Aug. 12, 2021), <a href="https://www.census.gov/library/stories/2021/08/united-states-adult-population-grew-faster-than-nations-total-population-from-2010-to-2020.html">https://www.census.gov/library/stories/2021/08/united-states-adult-population-grew-faster-than-nations-total-population-from-2010-to-2020.html</a>.
\118\ Azrael, D., Hepburn, L., Hemenway, D., & Miller, M.
(2017). The stock and flow of U.S. firearms: Results from the 2015
National Firearms Survey. The Russell Sage Foundation Journal of the
Social Sciences, 3(5), pp 38-57 (pp. 39 and 51). <a href="https://www.jstor.org/stable/10.7758/rsf.2017.3.5.02?seq=1">https://www.jstor.org/stable/10.7758/rsf.2017.3.5.02?seq=1</a>.
\119\ The Russell Sage Foundation Survey did not divide those
who sold to family or friends on a recurring basis from those who
made an occasional sale, or between those who did so with intent to
earn a profit and those who did not. As noted earlier in the
preamble, a person who makes only occasional firearms transfers,
such as gifts, to immediate family (without the intent to earn a
profit or circumvent requirements placed on licensees), generally
does not qualify as a dealer engaged in the business. Although it is
possible that some portion of the Russell Sage set of family and
friend transferors might qualify as dealers if they engage in
actions such as recurring transfers, transfers to others in addition
to immediate family, or transfers with intent to profit, ATF was not
in a position to make that determination from the Survey. Therefore,
ATF erred on the side of assuming, for the purpose of this analysis,
that the Russell Sage Foundation data on transfers to family and
friends would likely not be affected by this rulemaking, since, in
general, such transfers are less likely to be recurring or for
profit.
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ATF requests public comments on what sources ATF should look to for
accurate estimates of the percentage of the population that would need
to obtain a license because they are ``engaged in the business'' of
dealing in firearms, compared to those who make occasional sales of
firearms (e.g., enhancement of a personal collection or for a hobby)
and would not need to obtain a license.
3. Costs for Unlicensed Persons Becoming FFLs
As stated earlier, consistent with the statutory changes in the
BSCA, this proposed rule implements a new statutory provision that
requires individuals to become licensed dealers if they intend
predominantly to earn a profit through the repetitive purchase and
resale of firearms (which includes benefits from bartering). Costs to
become an FFL include an initial application on a Form 7, along with
fingerprints and photographs, and a qualification inspection. This
application would require fingerprints and photographs, not only from
the person applying, but also, in the case of a corporation,
partnership, or association, from any other individual who is a
responsible person of that business entity.
For purposes of this analysis, ATF assumes that most, if not all
unlicensed persons may be operating alone as sole proprietors because
this new requirement would likely affect persons who have other sources
of income and do not currently view licensing as a requirement. Besides
the initial cost of becoming an FFL, there are recurring costs to
maintain a license. These costs include renewing the license on a
Federal Firearms License Renewal Application, ATF Form 8 (5310.11)
(``Form 8'') every three years, maintaining acquisition and disposition
(``A&D'') records, maintaining ATF Forms 4473, and undergoing periodic
compliance inspections.
The proposed rule, which further implements the statutory changes
in the BSCA, would affect unlicensed persons who purchase and resell
firearms with the intent to predominantly earn a profit (as defined),
not those who are already licensed. Because affected unlicensed persons
would now need a license to continue to purchase and resell firearms,
ATF estimates that the opportunity costs of acquiring a license would
be based on their free time or ``leisure time.'' Based on the
Department of Transportation's (``DOT's'') guidance on the costs for
leisure time, ATF attempted to update the leisure wage below based on
the methodology outlined in the guidance.\120\ The DOT uses median
household income as the base for income from the U.S. Census. ATF used
the latest median income of a household from the U.S. Census, published
September 2021.\121\ Table 1 outlines the leisure wage.
---------------------------------------------------------------------------
\120\ Department of Transportation, The Value of Travel Time
Savings: Departmental Guidance for Conducting Economic Evaluations
Revision 2 (2016 Update), <a href="https://www.transportation.gov/sites/dot.gov/files/docs/2016%20Revised%20Value%20of%20Travel%20Time%20Guidance.pdf">https://www.transportation.gov/sites/dot.gov/files/docs/2016%20Revised%20Value%20of%20Travel%20Time%20Guidance.pdf</a>.
\121\ U.S. Census, Income and Poverty in the United States:
2020, <a href="https://www.census.gov/library/publications/2021/demo/p60-273.html">https://www.census.gov/library/publications/2021/demo/p60-273.html</a>.
Table 1--Leisure Wage Rate for Individuals
------------------------------------------------------------------------
Inputs for leisure wage rate Numerical inputs
------------------------------------------------------------------------
Median Household Income................... $67,521.
DOT Travel Time........................... 2080.
DOT's Value of Travel Time Savings........ 50 percent.
Leisure Wage Rate......................... $16.23.
Rounded Leisure Wage Rate................. $16.
------------------------------------------------------------------------
Based on DOT's methodology for leisure time, ATF attributes a
rounded value of $16 per hour for time spent buying and reselling
(including bartering) firearms on a repetitive basis. The same hourly
cost applies to persons who would now become licensed as a firearms
dealer who would not have become licensed without the clarifications
provided by this proposed rule. This could include persons who begin
selling firearms after the final rule's effective date and understand
from the rule that they qualify as firearms dealers (as defined by the
statute and regulations), or persons who were previously selling
without a license and now realize they must acquire one to continue
selling because their firearms transactions qualify them as dealers.
In addition to the cost of time, there are other costs associated
with applying to become an FFL. To become an FFL, persons need to apply
on a Form 7 and submit payment to ATF for fees associated with the Form
7 application. Furthermore, these unlicensed persons would need to
obtain documentation, including fingerprints and photographs, undergo a
background investigation, and submit all paperwork via mail. While not
a cost attributed towards their first-year application to become an
FFL, an FFL will need to reapply to renew their license every three
years on a Form 8 renewal application to ensure that that they can
continue to sell firearms thereafter. Table 2 outlines the costs to
become an FFL and costs to maintain a license.
[[Page 62010]]
Table 2--Cost Inputs To Become an FFL and Maintain a License
------------------------------------------------------------------------
Item Cost item Source
------------------------------------------------------------------------
Form 7 Application Accompanying $200.00 Application for Federal
Licensing Fees. Firearms License, ATF,
<a href="https://www.atf.gov/firearms/docs/form/form-7-7-cr-application-federal-firearms-license-atf-form-531012531016/download">https://www.atf.gov/firearms/docs/form/form-7-7-cr-application-federal-firearms-license-atf-form-531012531016/download</a> download.
Fingerprint Cards.............. 0.00 Distribution Center
Order Form, ATF,
<a href="https://www.atf.gov/distribution-center-order-form">https://www.atf.gov/distribution-center-order-form</a> (Apr. 20,
2023).
Fingerprint Cards (Commercial). 23.70 Various Sources.
Average Cost for Fingerprint 12 See above.
Cards.
Postage........................ 0.63 Mailing and Shipping
Prices, USPS, <a href="https://www.usps.com/business/prices.htm">https://www.usps.com/business/prices.htm</a> (last
visited Aug. 17,
2023).
Photograph..................... 16.99 Passport Photos, CVS,
<a href="https://www.cvs.com/photo/passport-photos">https://www.cvs.com/photo/passport-photos</a>
(last visited Aug. 17,
2023).
FFL Renewal Application 90.00 Federal Firearms
Licensing Fees (Form 8) every Licensing Center
three years. (``FFLC'').
------------------------------------------------------------------------
For purposes of this proposed rule, ATF assumes that unlicensed
persons applying for a license as a result of this rulemaking are
likely to file for a Type 01 Dealer license.\122\ This license costs
$200 and uses a Form 7 application (and every three years thereafter,
costs $90 to renew the license using Form 8). Applicants also need to
obtain and submit fingerprints in paper format. The unlicensed person
can obtain fingerprint cards for free from ATF and travel to select law
enforcement offices that perform fingerprinting services (usually also
for free). Or the unlicensed person may pay a fee to various market
entities that offer fingerprinting services in paper format. The
average cost found for market services for fingerprinting on paper
cards is $24 (rounded).
---------------------------------------------------------------------------
\122\ The cost for a Type 01 Dealer is used because this license
is used to purchase and resell firearms at wholesale or retail.
---------------------------------------------------------------------------
Because it is not clear whether an unlicensed person would choose
to obtain fingerprint cards from ATF and go to a local law enforcement
office that provides fingerprinting services or use commercial services
both to obtain cards and fingerprinting services, an average cost of
$12 was used. In addition to paper fingerprint cards, the unlicensed
person must also submit a photograph appropriate for obtaining
passports. The cost for a passport photo is $17 (rounded). Once they
complete the application and gather the documentation, unlicensed
persons must submit the Form 7 package by mail. ATF rounds the first-
class stamp rate of $0.63 to $1 for calculating the estimated mailing
cost.
In addition to costs associated with compiling documentation for a
Form 7 application, ATF estimates time burdens related to obtaining and
maintaining a Federal firearms license. Table 3 outlines the hourly
burdens to apply, obtain, and maintain a license.
Table 3--Hourly Burdens To Apply, Obtain, and Maintain a License
------------------------------------------------------------------------
Activity type Hourly burden Source
------------------------------------------------------------------------
Form 7 Application............. 1 Application for Federal
Firearms License, ATF,
<a href="https://www.atf.gov/firearms/docs/form/form-7-7-cr-application-federal-firearms-license-atf-form-531012531016/download">https://www.atf.gov/firearms/docs/form/form-7-7-cr-application-federal-firearms-license-atf-form-531012531016/download</a> download.
Time to Travel to and Obtain 0.5 N/A.
Photograph.
Time to Travel to and Obtain 1 N/A.
Fingerprints.
A&D Records.................... 0.05 OMB 1140-0032.
Form 4473...................... 0.5 OMB 1140-0020.
Inspection Times (Qualification 3 Field Operations and
or Compliance). OMB 1140-0032.
------------------------------------------------------------------------
As stated above, hourly burdens include one hour to complete a Form
7 license application and the time spent to obtain the required
documentation. For purposes of this analysis, ATF assumes that places
that offer passport photograph services are more readily available than
places that provide fingerprinting services; therefore, ATF estimates
that it may take 30 minutes (0.5 hours) to travel to and obtain a
passport photograph and estimates up to one hour to travel to and
obtain fingerprinting services. Other time burdens may range from 0.05
hours (three minutes) to enter and maintain A&D records for each
firearm transaction and 0.5 hours for maintaining a Form 4473, to three
hours for an inspection (qualification or compliance).
ATF then multiplied the hourly burdens by the $16 leisure wage rate
to account for the value of time spent applying for and obtaining a
license using a Form 7 (including any other actions related to
obtaining a license), then added the cost per item to determine a cost
per action taken. Table 4 outlines the first-year costs to apply for an
FFL.
[[Page 62011]]
Table 4--First-Year Costs To Obtain a Type 01 FFL
----------------------------------------------------------------------------------------------------------------
Rounded cost
Cost item Hourly burden Hourly wage Hourly cost Cost item for each
rate activity
----------------------------------------------------------------------------------------------------------------
Form 7.......................... 1 $16 $16 $200 $216
Fingerprints.................... 1 16 16 12 28
Passport Photograph............. 0.5 16 8 17 25
Postage......................... N/A 16 N/A 0.63 1
Qualification Inspection........ 3 16 48 N/A 48
-------------------------------------------------------------------------------
Initial Cost................ .............. .............. .............. .............. 318
----------------------------------------------------------------------------------------------------------------
Overall, ATF estimates that it would cost an unlicensed person $318
in terms of time spent and fees paid to apply under a Form 7 to become
a Type 01 FFL. ATF considers the $318 as an unlicensed person's initial
cost. In addition to their initial cost, the newly created FFL would
need to maintain a Form 4473 (for each firearm sale), A&D records (two
entries per firearm: one entry to purchase and one entry to sell) for
every firearms transaction, undergo periodic compliance inspections,
and renew their license every three years (ATF Form 8 application).
Table 5 outlines the cost per recurring activity to maintain an FFL.
Table 5--Recurring Costs To Maintain an FFL
----------------------------------------------------------------------------------------------------------------
Rounded
Number of entries Hourly Hourly Hourly cost for
Item or applications burden wage rate cost per Cost item each
activity activity
----------------------------------------------------------------------------------------------------------------
Form 8 Renewal Application...... 1 (every three 0.5 $16.00 $8.00 $90 $98
years).
Form 4473....................... 3 (firearm sales 0.5 16.00 24.00 N/A 24
every year).
A&D Records..................... 6 (two entries per 0.05 16.00 4.80 N/A 5
firearm every
year).
Compliance Inspections.......... 1 (periodically).. 3 16.00 48.00 N/A 48
----------------------------------------------------------------------------------------------------------------
While renewing a license under a Form 8 application occurs every
three years, there are additional costs associated with Form 4473 and
A&D records that may occur more often. There are also costs from
compliance inspections that may occur periodically. ATF notes that the
actual number of firearms sales may range from zero sales to more than
three per year, but for purposes of this economic analysis only, ATF
uses three firearms (six A&D entries) per year to illustrate the
potential costs that a person may incur based on information gleaned
from ArmsList. Although a person might not resell a given firearm in
the same year they purchase it, for the purposes of these estimates,
this analysis includes both ends of the firearm transaction because
they could buy and sell the same firearm or buy one and sell a
different one in a given year.
As for compliance inspections, based on information gathered from
ATF's Office of Field Operations, the frequency of such inspections
varies depending on the size of the area of operations and the number
of FFLs per area of operations. Overall, ATF estimates that it inspects
approximately eight percent of all existing FFLs in any given year. ATF
has indicated the cost of an inspection, which would normally not occur
more than once in a given year per FFL. ATF performs compliance
inspections annually, so while the FFL would not necessarily incur a
compliance inspection every year, this analysis includes an annual cost
for inspections to account for a subset of the total number of affected
FFLs that would be inspected in any given year.
In summary, ATF estimates that it would cost an individual $318 in
the first year to become licensed. Furthermore, this individual would
incur annually recurring costs that could range from $29 a year to
complete Forms 4473 and maintain A&D records to $175 to include Form 8
renewal costs and compliance inspections.\123\ In addition, ATF
estimates that annual costs would range from $805,884 to $7.8 million,
with the $7.8 million being the highest annual cost, occurring in the
first year, using the SME estimates. Using the alternative inputs from
the Russell Sage Foundation Survey results in annual costs ranging from
$10.8 million to $104.4 million. Tables 6 and 7 illustrate the 10-year
period of analysis.
---------------------------------------------------------------------------
\123\ ATF notes that the high $175 may be higher than actual
costs since this high cost assumes that an FFL would simultaneously
renew their license (which occurs every three years) in the same
year that they perform a compliance inspection, which occurs
periodically.
Table 6--10-Year Private Costs to the Proposed Rule Using SME Estimate
----------------------------------------------------------------------------------------------------------------
Discounted at 3 Discounted at 7
Year Undiscounted percent percent
----------------------------------------------------------------------------------------------------------------
1......................................................... $7,803,720 $7,576,427 $7,293,196
2......................................................... 805,884 759,623 703,890
3......................................................... 805,884 737,498 657,841
4......................................................... 3,210,804 2,852,758 2,449,507
5......................................................... 805,884 695,163 574,584
6......................................................... 805,884 674,915 536,995
[[Page 62012]]
7......................................................... 3,210,804 2,610,677 1,999,527
8......................................................... 805,884 636,172 469,032
9......................................................... 805,884 617,643 438,348
10........................................................ 3,210,804 2,389,140 1,632,210
-----------------------------------------------------
Total................................................. 22,271,436 19,550,016 16,755,130
Annualized............................................ ................ 2,291,858 2,385,554
----------------------------------------------------------------------------------------------------------------
Overall, the annualized private cost of this proposed rule using
SME estimates is $2.3 million at three percent and $2.4 million at
seven percent.
Table 7--10-Year Private Costs to the Proposed Rule Using the Russell Sage Foundation Survey
----------------------------------------------------------------------------------------------------------------
Discounted at 3 Discounted at 7
Year Undiscounted percent percent
----------------------------------------------------------------------------------------------------------------
1......................................................... $104,398,128 $101,357,406 $97,568,344
2......................................................... 10,781,256 10,162,368 9,416,767
3......................................................... 10,781,256 9,866,377 8,800,716
4......................................................... 42,954,264 38,164,307 32,769,602
5......................................................... 10,781,256 9,300,006 7,686,887
6......................................................... 10,781,256 9,029,132 7,184,006
7......................................................... 42,954,264 34,925,747 26,749,757
8......................................................... 10,781,256 8,510,823 6,274,789
9......................................................... 10,781,256 8,262,935 5,864,289
10........................................................ 42,954,264 31,962,006 21,835,770
-----------------------------------------------------
Total................................................. 297,948,456 261,541,108 224,150,926
Annualized............................................ ................ 30,660,597 31,914,049
----------------------------------------------------------------------------------------------------------------
Overall, the annualized private cost of this proposed rule, based
on alternate inputs from the Russell Sage Foundation Survey, is $30.7
million at three percent and $31.9 million at seven percent.
4. Costs for FFLs After Termination of License
The proposed rule is also designed to enhance compliance by former
FFLs who no longer hold their licenses due to license revocation,
denial of license renewal, license expiration, or surrender of license
but nonetheless engage in the business of dealing in firearms. Such
persons sometimes, under existing standards, transfer their inventory
to their personal collections instead of selling or otherwise disposing
of the firearms to a licensed importer, licensed manufacturer, or
licensed dealer for sale, auction, or pawn redemption. The proposed
rule would clarify that such former licensees must sell to other
licenses or transfer their personal collection within 30 days, but they
may not treat a business firearm that they have transferred to their
personal collection as a personal firearm until the firearm has been in
their personal collection for a period of one year. Former FFLs who
sell any such firearm within one year of the transfer date as a
personal firearm may be in violation of existing statutory and
regulatory restrictions (18 U.S.C. 922(a)(1)(A) and 923(a),(c)) on
unlicensed dealers, and may be deemed to be ``engaged in the
business.''
ATF license revocation, denial of license renewal, license
expiration, or surrender of license realistically present two
categories of affected populations. Group 1, comprising license
revocations and denial of license renewals, could be described as
former FFLs who have failed to comply with existing regulations and
requirements to a degree which resulted in the revocation or denial of
their licenses. The proposed rule is likely to have a qualitative
impact on this group because a revocation or denial may not provide
ample opportunity for an orderly and planned liquidation or transfer of
inventory before losing the license, which may therefore be disruptive.
Based on data from the FFLC, the number of such FFL license revocations
are rare, with an average of 37 licenses revoked by ATF over the past 5
years (with a range between 8 and 79), or a de minimis percentage of
0.05 percent of all active FFLs. Furthermore, the economic impact of
transferring inventory to another FFL instead of the former FFL holder
retaining the inventory is unclear, as the underlying market value of
the inventory is unchanged by this proposed rule's requirements.
Additional factors surrounding the potential cost of no longer being
able to transfer one's inventory to oneself are also unknown and
presumed to similarly be de minimis. Therefore, ATF believes there are
no quantitative impacts associated with this population. However, ATF
welcomes public comments on these assumptions in general and on the
potential impacts on former FFLs with revoked licenses.
Group 2, comprising license expiration or surrender of license,
captures those who no longer have a license for discretionary or lawful
reasons. This group comprises former FFLs that choose to close or to
sell the business to another party. They are similarly excluded from
expected impacts attributable to the proposed rule because of the
likelihood that, because the closure is planned, the FFL will include
reasonable considerations for orderly, lawful liquidation or inventory
transfer as part of closing or selling their enterprise. Such
considerations are also likely to occur ahead of, rather than
subsequent to, the expiration or surrender of their license. As a
result, ATF assumes that the
[[Page 62013]]
options of transfer to the licensee's personal collection or sale to
another FFL that exist under current standards would similarly be
freely available to Group 2 FFLs over their expected course of action
under the proposed rule. As a result, we are excluding both groups from
the affected population.
5. Government Costs
In addition to the private costs to unlicensed persons, ATF would
incur additional work due to the increase in Form 7 and Form 8
applications for unlicensed persons who become an FFL which would be
offset by the fees incurred with FFL applications ($200) and renewals
($90). Based on information gathered from FFLC, which processes and
collects the fees for FFL applications, various contractors and Federal
Government employees process Form 7 and 8 applications, verify and
correct applications, and further process them for background checks
and approval.
Based on information provided by FFLC, the average hourly rate for
contracting staff, to include benefits, is $13.29.\124\ To determine
the wage rates for Federal employees, ATF used the wage rates according
to the General Schedule (``GS'') level, step 5 as an average wage rate
per activity. Government processing activities range from an entry
level Federal employee between a GS-5/7, upwards to a GS-13.\125\ To
account for fringe benefits such as insurance, ATF estimated a Federal
load rate. ATF estimated the Federal load rate using the methodology
outlined in the Congressional Budget Office's report comparing Federal
benefits to private sector benefits. It states that Federal benefits
are 17 percent more than private sector benefits (or a multiplier
factor of 1.17).\126\ ATF calculated private sector benefits from the
Bureau of Labor Statistics (in 2022) and determined that the overall
private sector benefits are 41.9 percent in addition to an hourly wage,
or a load rate of 1.419. This makes the Federal load rate 1.66 above
the hourly wage rate (after applying the 1.17 multiplier).\127\ Table 8
outlines the government costs to process a Form 7 application to become
an FFL.
---------------------------------------------------------------------------
\124\ ATF notes that because the contracting salary is a loaded
wage rate, a base wage rate (not including benefits) was not
included in table 8 below.
\125\ Office of Personnel Management, Salary Table 2023-DCB,
<a href="https://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/pdf/2023/DCB_h.pdf">https://www.opm.gov/policy-data-oversight/pay-leave/salaries-wages/salary-tables/pdf/2023/DCB_h.pdf</a>.
\126\ Congressional Budget Office, Comparing the Compensation of
Federal and Private-Sector Employees, 2011 to 2015, <a href="https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/52637-federalprivatepay.pdf">https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/52637-federalprivatepay.pdf</a>.
\127\ 1.66 Federal load rate = 1.419 private industry load rate
* 1.17 multiplier factor. BLS Series ID
CMU2010000000000D,CMU2010000000000P (Private Industry Compensation =
$39.34)/BLS Series ID CMU2020000000000D,CMU2020000000000P (Private
Industry Wages and Salaries = $27.73) = 1.419. BLS average 2022.
U.S. Bureau of Labor Statistics, Database for Employee Compensation,
<a href="https://data.bls.gov/cgi-bin/srgate">https://data.bls.gov/cgi-bin/srgate</a>.
Table 8--Hourly Burden and Cost To Process a New Application for an FFL
----------------------------------------------------------------------------------------------------------------
Loaded
Government cost to process new Hourly Staffing level Hourly hourly Rounded
FFL applications burden wage wage cost
----------------------------------------------------------------------------------------------------------------
Average Contracting Time to 0.5 Contracting Staff............ $13.29 $13.29 $7
Prepare and Enter Application.
Processing Time for New 1 GS 10........................ 38.85 64.49 64
Applications.
Processing Time for Fingerprint 2 GS 12........................ 51.15 84.91 170
Cards.
Qualification Inspection Time 5 GS 5/7 to GS 13.............. 37.65 62.50 312
(Includes Travel).
------------------------------------------------------------------------------
Subtotal..................... .......... ............................. .......... .......... 553
Fees Incurred from New .......... ............................. .......... .......... -200
Application.
------------------------------------------------------------------------------
Total.................... .......... ............................. .......... .......... 353
----------------------------------------------------------------------------------------------------------------
Based on the hourly burdens and the hourly wage rates for various
contract and Federal employees, ATF estimates that it would take on
average 8.5 hours to process a Form 7 application, at a cost of $553
per application, offset by the new application fee (Form 7) of $200,
for an overall net cost to the government for this rulemaking of $353.
Form 8 application renewals are estimated to cost $71 every three years
(or $553 less the $312 inspection time and the $170 fingerprint costs).
However, the cost to review a Form 8 application ($71) is offset by the
renewal fee of $90, making the net cost or overall savings to
government for this rulemaking -$19 per FFL renewal.
In addition to processing Form 7 applications, ATF Industry
Operations Investigators (``IOIs'') would need to perform qualification
and compliance inspections. The qualification inspection occurs once
during the application process and is accounted for in table 7 above.
But, as discussed above, there is a recurring compliance inspection
after the person becomes a licensee. For either the qualification or
compliance inspection, ATF notes that the estimated five-hour
inspection time for the government is more than the inspection time for
the private sector, as discussed above, because ATF is including travel
time for an IOI to travel to the person's location. Table 9 outlines
the recurring government cost to inspect an FFL.
Table 9--Recurring Government Costs To Inspect an FFL
----------------------------------------------------------------------------------------------------------------
Loaded
Activity Hourly Staffing level Hourly hourly Rounded
burden wage wage cost
----------------------------------------------------------------------------------------------------------------
Compliance Inspection (Includes 5 GS 5/7 to GS 13.............. $37.65 $62.50 $312
Travel).
----------------------------------------------------------------------------------------------------------------
Based on the hourly burdens and wage rates of IOIs, ATF anticipates
that it costs ATF $312 to perform a compliance inspection. To summarize
the overall government costs, table 10 outlines the government costs to
process
[[Page 62014]]
Form 7 applications, process Form 8 renewal applications, and conduct
FFL compliance inspections.
Table 10--Summary of Government Cost per Listed Action
------------------------------------------------------------------------
Government cost per unlicensed person Cost
------------------------------------------------------------------------
Per Application Cost (including qualification $353
inspection)............................................
Per Renewal Cost........................................ -19
Per Compliance Inspection Cost.......................... 312
------------------------------------------------------------------------
ATF estimates that the government costs of this proposed rule
include the initial application cost that occurs in the first year
(including the qualification inspection), renewal costs that occur
every three years after the first year, and the cost for the government
to conduct a compliance inspection of an FFL in a given year (the
government currently conducts compliance inspections of approximately
eight percent of FFLs per year). Table 11 illustrates the 10-year
government costs this proposed rule.
Table 11--Total Government Costs of Proposed Rule
----------------------------------------------------------------------------------------------------------------
Year Undiscounted 3 Percent 7 Percent
----------------------------------------------------------------------------- discount rate discount rate
-----------------------------------
Year Undiscounted 3% 7%
----------------------------------------------------------------------------------------------------------------
1......................................................... $8,662,620 $8,662,620 $8,662,620
2......................................................... 612,456 612,456 612,456
3......................................................... 612,456 612,456 612,456
4......................................................... 146,196 146,196 146,196
5......................................................... 612,456 612,456 612,456
6......................................................... 612,456 612,456 612,456
7......................................................... 146,196 146,196 146,196
8......................................................... 612,456 612,456 612,456
9......................................................... 612,456 612,456 612,456
10........................................................ 146,196 146,196 146,196
-----------------------------------------------------
Total................................................. 12,775,944 12,775,944 12,775,944
Annualized............................................ ................ 1,497,730 1,819,007
----------------------------------------------------------------------------------------------------------------
Overall, the annualized government cost of this proposed rule is
$1.5 million at three percent and $1.8 million at seven percent.
6. Total Cost
The total costs, therefore, take into account the private and
government costs of the proposed rule, as described in sections 3 and 5
above. ATF estimates that the initial application cost (Form 7 and
initial inspection) occurs in the first year, renewal costs (Form 8
renewals) occur every three years after the first year, and completion
and maintenance of Forms 4473 and A&D records, and compliance
inspection costs (for a subset of FFLs affected by this rulemaking),
occur annually. Tables 12 and 13 illustrate the 10-year private and
government costs of this proposed rule.
---------------------------------------------------------------------------
\128\ The ``Undiscounted'' column represents totals from the
underlying private and government cost tables. Consistent with
guidance provided by OMB in Circular A-4, the ``3 Percent Discount
Rate'' and ``7 Percent Discount Rate'' columns result from applying
an economic formula to the number in each row of this
``Undiscounted'' column to show how these future costs over time
would be valued today; they do not contain totals from other tables.
Table 12--Total Private and Government Costs of Proposed Rule Based on SME Estimates \128\
----------------------------------------------------------------------------------------------------------------
3 Percent 7 Percent
Year Undiscounted discount rate discount rate
----------------------------------------------------------------------------------------------------------------
1......................................................... $16,466,340 $15,986,738 $15,389,103
2......................................................... 1,418,340 1,336,921 1,238,833
3......................................................... 1,418,340 1,297,982 1,157,788
4......................................................... 3,357,000 2,982,651 2,561,039
5......................................................... 1,418,340 1,223,473 1,011,257
6......................................................... 1,418,340 1,187,837 945,100
7......................................................... 3,357,000 2,729,548 2,090,571
8......................................................... 1,418,340 1,119,651 825,487
9......................................................... 1,418,340 1,087,040 771,483
10........................................................ 3,357,000 2,497,923 1,706,529
Total................................................. 35,047,380 31,449,764 27,697,189
Annualized............................................ ................ 3,686,872 3,943,457
----------------------------------------------------------------------------------------------------------------
[[Page 62015]]
Overall, the total annualized cost of this proposed rule is $3.7
million at three percent and $3.9 million at seven percent using
information based off of SME estimates.
Table 13--Total Private and Government Costs of Proposed Rule Based on Russell Sage Foundation Survey and SME
Estimates \129\
----------------------------------------------------------------------------------------------------------------
Discounted at 3 Discounted at 7
Year Undiscounted percent percent
----------------------------------------------------------------------------------------------------------------
1......................................................... $113,060,748 $109,767,717 $105,664,250
2......................................................... 11,393,712 10,739,666 9,951,709
3......................................................... 11,393,712 10,426,861 9,300,663
4......................................................... 43,100,460 38,294,200 32,881,135
5......................................................... 11,393,712 9,828,316 8,123,559
6......................................................... 11,393,712 9,542,054 7,592,111
7......................................................... 43,100,460 35,044,618 26,840,800
8......................................................... 11,393,712 8,994,301 6,631,244
9......................................................... 11,393,712 8,732,332 6,197,424
10........................................................ 43,100,460 32,070,790 21,910,088
-----------------------------------------------------
Total................................................. 310,724,400 273,440,855 235,092,985
Annualized............................................ ................ 32,055,610 33,471,952
----------------------------------------------------------------------------------------------------------------
Overall, using the information from the Russell Sage Foundation
Survey and FIPB SME estimates, table 13 represents the upper bound
estimate in which the total annualized cost of this proposed rule is
$32 million at three percent and $33.4 million at seven percent.
---------------------------------------------------------------------------
\129\ The ``Undiscounted'' column represents totals from the
underlying private and government cost tables. Consistent with
guidance provided by OMB in Circular A-4, the ``3 Percent Discount
Rate'' and ``7 Percent Discount Rate'' columns result from applying
an economic formula to the number in each row of this
``Undiscounted'' column to show how these future costs over time
would be valued today; they do not contain totals from other tables.
-----------
[…truncated; see source link]Indexed from Federal Register on September 8, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.