FFL as a side business. Minimum profit requirements?

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Arizona_Mike

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As far as I can tell, the requirements are that you:
1. Intend to make a profit.
2. Intend to not sell only at gun shows.
3. Intend to acquire guns not only for your personal collection.

Let's say someone honestly wants to supplement their income part time as a Title 1 dealer for their extended social network and possibly more and they also have a SOT for fun. Is there any rule requiring they intend to make an independent profit on Title 2 weapons?

Mike
 
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A friend of mine has a FFL. He runs his business out of his house. He's retired so I guess you could say it's a part time deal as he spends his summers out of state.
 
You need to meet the requirements of the state and local governments for business and permitting also........ATF won't issue you a license if you don't comply with local laws and codes.......many local jurisdictions now require you to have a storefront to keep people from getting a FFl for their own use...........
 
Arizona_Mike.....and they also have a SOT for fun. Is there any rule requiring they intend to make an independent profile on Title 2 weapons?
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The SOT isn't "for fun".....its a yearly flat rate tax paid by a dealer or manufacturer to allow commerce in NFA firearms.

If ATF discovers the only NFA transfers are to yourself, they could make a pretty good argument you are committing tax evasion.
 
In my area the FFL is the easy part. The impossible part is getting permission from the county, city, and local authority's to run it out of your home. they won't approve me because of zoning. So the FFl doesn't mean much if I can't buy, sell or deliver guns unless I have a commercial zoning, which they won't give me.
 
If ATF discovers the only NFA transfers are to yourself, they could make a pretty good argument you are committing tax evasion.
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The guy could just be a bad business man who marked his stuff up to high, or he could just have some demo items that he will not cut you a better price on. The ATF cannot tell you how much you have to sell anymore than they can tell the average person how much they can buy.

If your wanting to be a 07 manufacturer there are laws that say how many you must make to keep your license but not how many you must sell.
 
The ATF won't second-guess your profitability. You could simply be a bad businessperson, and that's OK with them.

However, if all your transactions are purchases, and you have no sales, that's going to raise all sorts of red flags with them. It would look as though you got the license just to enhance a personal collection, and that's a big no-no.

The same goes for the Title II items, if you pay the SOT. An 01 FFL, even a completely legitimate 01 FFL, cannot pay the SOT just to facilitate personally collecting Title II items without paying the transfer tax and going through certain other procedures. That could easily be considered tax evasion.

The answer to this is that if you pay the SOT, you need to make at least a few Title II sales. That shouldn't be too difficult.
 
The ATF won't second-guess your profitability. You could simply be a bad businessperson, and that's OK with them.
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That's the IRS's purview, mainly for whether or not you can write off your losses on your taxes. ATF only cares about the guns going through your books. Doing even a few transfers a week will bump up your numbers enough that it's not a problem.
 
crazy-mp
Quote:
If ATF discovers the only NFA transfers are to yourself, they could make a pretty good argument you are committing tax evasion.
Click to expand...

The guy could just be a bad business man who marked his stuff up to high, or he could just have some demo items that he will not cut you a better price on.
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There is no requirement to stock NFA inventory. I don't.

If ATF discovers a dealer who is using his SOT to only acquire personal NFA firearms it is no different than him using his FFL to acquire personal Title I guns.


The ATF cannot tell you how much you have to sell anymore than they can tell the average person how much they can buy.
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Wanna bet?;)
While there is no magic number of sales or transfers, ATF clearly states on the Form 7 that an FFL is not for enhancing your personal collection, but for business.
You better show the occasional transfer to someone other than yourself. ATF has made it quite clear that licenses/SOT are NOT for personal use. You must be engaged in the business of dealing in firearms.
 
Midwest I am under the impression that SOT's have to register and pay for ITAR, is that correct ?
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No.
ITAR is only paid by those licensees who manufacture items (not just firearms) that are on the U.S. munitions list.

An SOT is just the flat rate tax that dealers and manufacturers pay to allow them to transfer Title II firearms without paying an individual tax on each firearm.
 
As I stated in my initial post, I would intend to make a profit.

There question if a FFL who intends to make a profit adds a SOT is there an independent requirement for profitability or intent to make a profit on Title II firearms as well as Title I firearms.

I'm eligible for full retirement with pension and health plan in only 9 years and I will still be very young. I could practice for a while as a side business and learn the trade.

Mike
 
There is no requirement in ANY business that you show a profit. Many businesses lose money consistently yet remain in business. What BATFE requires is that you engage in the business of buying and selling firearms. As Dogtown Tom said, you must run some sales through your books to meet this requirement, but you do not have to show a profit, at least not to BATFE. IRS is another matter. Any business which does not show some profit over time is not considered a real business and you will be denied a claimed tax loss repeatedly.
 
Wanna bet?
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As a matter of fact I do tell me how many I need to sell every year to maintain my FFL/SOT so I can stop answering the phones every year once I have met that number.
 
dogtown tom said:
The SOT isn't "for fun".....its a yearly flat rate tax paid by a dealer or manufacturer to allow commerce in NFA firearms.

If ATF discovers the only NFA transfers are to yourself, they could make a pretty good argument you are committing tax evasion.
Click to expand...
Not much point in using a FFL to transfer transferables to oneself. If I had some posties in my FFL inventory I would try my best not to enjoy testing and evaluation.

Mike
 
Arizona Mike,

The first thing I would do is get a very good business tax attorney and sit with him/her and develop a solid business plan. You may discover (actually I will so far as to suggest) that losing money on your start up business for a few years may actually lower your taxes and improve your bottom line.

It is not illegal to take advantage of every tax law and is the best way to avoid making a mistake and getting a sit down visit with the IRS.
 
Since the stated intent is to make a profit, all BATFE would care about is that sales are made. The rate of sales from whatever inventory is not particularly important, as long as there are some sales. "Bad businessman" comes into play if sales are slow.

As far as IRS, it used to be that you didn't have to show a profit until the fifth year of operation. Prior to that, expenses could be written off even if there were only losses. I've no clue if that time-frame has changed.

The main potential problem is that of the location. Local laws control, as mentioned above as to zoning. BATFE requires compliance with those controls before a license will be issued.
 
>60% of FFLs in Arizona are residential so the zoning is not going to be an issue (at worst would be changing neighborhoods which I plan to do when I retire anyway).

Mike
 
AlexanderA said:
The ATF won't second-guess your profitability. You could simply be a bad businessperson, and that's OK with them.

However, if all your transactions are purchases, and you have no sales, that's going to raise all sorts of red flags with them. It would look as though you got the license just to enhance a personal collection, and that's a big no-no.

The same goes for the Title II items, if you pay the SOT. An 01 FFL, even a completely legitimate 01 FFL, cannot pay the SOT just to facilitate personally collecting Title II items without paying the transfer tax and going through certain other procedures. That could easily be considered tax evasion.

The answer to this is that if you pay the SOT, you need to make at least a few Title II sales. That shouldn't be too difficult.
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^^ This...

In fact, many small business owners want to show little or no profit at the end of the year to avoid double taxation. Pay yourself a salary, then disburse a dividend, and keep only the money in the business that you need. "Profit" is irrelevant.
 
There may be some confusion, but even if you own a corporation that has an NFA SOT, and owns, imports, or manufactures machineguns, you cannot transfer those guns to yourself, since they cannot be registered to an individual (you). If the corporation goes out of business, they have to be abandoned to ATF, transferred to an official entity or transferred to another SOT payer.

Jim
 
Jim K There may be some confusion, but even if you own a corporation that has an NFA SOT, and owns, imports, or manufactures machineguns, you cannot transfer those guns to yourself, since they cannot be registered to an individual (you). If the corporation goes out of business, they have to be abandoned to ATF, transferred to an official entity or transferred to another SOT payer.
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The NFA firearms would transfer exactly as any other transferrable NFA firearm would.......you fill out a Form 4 and pay the ATF tax stamp.

Only "dealer samples" (which require a LE letter to transfer) would not be transferrable to an individual.

SBS's, SBR's, silencers, AOW's and fully transferrable machine guns can easily be transferred to an individual.
 
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