The National Firearms Act (“NFA”) was enacted in 1934. The purpose of the NFA was to slow the transfer of certain firearms. The NFA regulates several restricted firearms, such as: machine guns, short-barreled rifles, short-barreled shotguns, suppressors, destructive devices and other certain classes of firearms. Congress enacted a $200 tax to discourage the transfer of these firearms, which has not changed since 1934. See 26 U.S.C. § 5811
Many firearm enthusiasts are interested in NFA firearms as they offer uniqueness to any collection; their restricted nature makes them desirable. Any lawful person may purchase and transfer an NFA item, where not prohibited by state law. A “Person” is defined as “[a] partnership, company, association, trust, corporation, including each responsible person associated with such an entity; an estate; or an individual.” See 27 CFR 479.11. Due to the relative ease of creation and flexibility of ownership, many firearm enthusiasts choose to own their NFA items in a simple revocable trust – an “NFA Trust”.
An NFA Trust offers the owner(s) a diverse and responsible means of ownership. An NFA Trust can be created to allow for the simple addition and/or removal of a Trustee to the NFA Trust, thus allowing multi-person possession while the trust maintains ownership. Ownership of NFA items as an “individual” creates a challenging scenario where only the registered person may possess the NFA firearm. Where an entity such as an NFA Trust maintains ownership, those persons listed as Trustees may lawfully possess the NFA items. The ease of adding and removing additional Trustees recently came under scrutiny by the Bureau of Alcohol Tobacco Firearms and Explosives (“BATFE”).
Previously, a person that wished to transfer an NFA item to their trust simply completed BATFE Form 5320.4 (the “Form 4”) in duplicate, including a copy of the trust and payment of the $200 transfer tax. BATFE recently proposed and enacted a rule change Rule 41F whereby each trustee to a trust is required to submit fingerprints, photo and other certification verifying compliance with federal law. While Rule 41F attempted to make it mandatory for all NFA trust users to submit information for review, the rule change does prohibit NFA Trust owners from submitting their NFA trust with only one trustee, wait for Form 4 approval and then add additional trustees to the NFA Trust after review is complete. Similarly, if a user desired to remove all of the trustees, save one, they could easily remove that Trustee without BATFE review. In effect, the NFA transfer process only reviews a trust at the time of transfer; there is no process for ongoing review of the NFA Trust after transfer is complete.
Once application for transfer is approved, the user is produced a “stamped” version of their Form 4. This Form 4 stamp acts as proof of having paid the transfer tax. The Form 4 is, in its simplest terms, a document showing proof of paying the tax. Furthermore, the Form 4 is subject to the Privacy Act of 1974. As such, only those persons listed on the Form 4 may inquire regarding transfer of NFA items to BATFE. By extension, it is common practice for gun shops licensed to handle NFA items to only discuss NFA forms with those authorized to discuss the NFA items.