Buying and selling guns to make a profit without an FFL.

[slowr1der]

I'm having a debate with another guy about if it's legal to buy and sell guns with the intent to make a profit without having a FFL. Now page 7 of this defines "engaged in business" pretty clearly. http://www.atf.gov/publications/download/p/atf-p-5300-4.pdf

I always took that as that you can make the occasional private sale, but can't buy guns with the intent to resell to make a profit.

The other guy is claiming that you can buy guns to resell as long as it's not your primary source of income. So if someone is doing it to make a few grand a year, this is okay, as long as it's not your main income. He claims, that a buddy of his got cleared by the ATF after they investigated him for this since he wasn't making his "living" off of it.

Which one of us are right?

 

[BleysAhrens]

I'm sure the IRS would get you some way if you make enough money... I would say get an FFL to cover your A... I sure you could really make money off of it..

 

[natman]

The quoted ATF document defines a dealer 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".

It sounds like your friend is trying to weasel out of this definition by saying he's not deriving his entire livelihood by selling firearms. Sounds like a mighty thin reed to me.

 

[D94R]

What location is this taking place in?

Two follow up questions:

Why are these "transactions" being documented? Face to face sales, if not an FFL, need be non one elses business. Buy and sell 5 or 500 and it's no ones business how much money you make or lose.

Is the profit on these guns being recorded for tax liability purposes? If not, see above. If so, well then there's a whole can of worms to open up to cover all bases regarding that.

 

[Sam1911]

If you are buying and selling a lot of guns, you could open youself up to charges of dealing guns without a license.

The US Code says:

(11) The term “dealer” means

(A) any person engaged in the business of selling firearms at wholesale or retail,
(B) any person engaged in the business of repairing firearms or of making or fitting special barrels, stocks, or trigger mechanisms to firearms, or
(C) any person who is a pawnbroker. The term “licensed dealer” means any dealer who is licensed under the provisions of this chapter.

Some further definitions:

(21) The term “engaged in the business” means—

(A) as applied to a manufacturer of firearms, a person who devotes time, attention, and labor to manufacturing firearms as a regular course of trade or business with the principal objective of livelihood and profit through the sale or distribution of the firearms manufactured;
(B) as applied to a manufacturer of ammunition, a person who devotes time, attention, and labor to manufacturing ammunition as a regular course of trade or business with the principal objective of livelihood and profit through the sale or distribution of the ammunition manufactured;
(C) as applied to a dealer in firearms, as defined in section 921 (a)(11)(A), 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, but such term shall 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;
(D) as applied to a dealer in firearms, as defined in section 921 (a)(11)(B), a person who devotes time, attention, and labor to engaging in such activity as a regular course of trade or business with the principal objective of livelihood and profit, but such term shall not include a person who makes occasional repairs of firearms, or who occasionally fits special barrels, stocks, or trigger mechanisms to firearms;
(E) as applied to an importer of firearms, a person who devotes time, attention, and labor to importing firearms as a regular course of trade or business with the principal objective of livelihood and profit through the sale or distribution of the firearms imported; and
(F) as applied to an importer of ammunition, a person who devotes time, attention, and labor to importing ammunition as a regular course of trade or business with the principal objective of livelihood and profit through the sale or distribution of the ammunition imported.

(22) The term “with the principal objective of livelihood and profit” means 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: Provided, That proof of profit shall not be required as to a person who engages in the regular and repetitive purchase and disposition of firearms for criminal purposes or terrorism. For purposes of this paragraph, the term “terrorism” means activity, directed against United States persons, which—
(A) is committed by an individual who is not a national or permanent resident alien of the United States;
(B) involves violent acts or acts dangerous to human life which would be a criminal violation if committed within the jurisdiction of the United States; and
(C) is intended—
(i) to intimidate or coerce a civilian population;
(ii) to influence the policy of a government by intimidation or coercion; or
(iii) to affect the conduct of a government by assassination or kidnapping.

There is still plenty of grey area to get yourself hung up in.

 

[Bubbles]

The other guy is claiming that you can buy guns to resell as long as it's not your primary source of income. So if someone is doing it to make a few grand a year, this is okay, as long as it's not your main income.

False. If you look at what Sam posted, the definition of "engaging in the business" is not determined by whether or not you make a profit. In fact, many businesses show losses in their first year or so due to startup costs.

He claims, that a buddy of his got cleared by the ATF after they investigated him for this since he wasn't making his "living" off of it.

More likely the buddy took a deal and is now an ATF snitch - I know someone in this unenviable position right now for selling a pistol across state lines w/ no FFL involved. The pistol was later used in a crime and traced; ATF's going to get a lot more use out of the dummy than they would prosecuting his sorry behind.

 

[TexasRifleman]

Bottom line is the law is sufficiently muddy to allow ATF to charge folks as they wish and let a jury sort it out. As mentioned above, it's not profit by itself that is the issue, it's intent. The law says "principle objective". So all they have to do is prove you were TRYING to make a living at it and you are toast.

If you're into high stakes gambling this should be lots of fun.

The only way you will get a specific answer for a specific set of circumstances is to hear it during a trial.

 

[Joe in fla]

D94R said:
Why are these "transactions" being documented? Face to face sales, if not an FFL, need be non one elses business.

That's why the police, ATF and other LE use stings and snitches! Then it IS their business!

FWIW I have heard of people being prosecuted for making a few as TWO sales per year! That's why 20 or so years ago EVERYONE was getting FFLs. Then the Clintonistas decided that there were too many people with FFLs and that they weren't really dealers and started taking away FFLs! The problem is that the feds have never given any clear guidance as to when you're a dealer and when you're not and there's a huge grey area about who's a dealer and who isn't and who should have an FFL and who shouldn't. The problem is that in that situation it leaves lot of discretion up to the ATF and prosecuting attorneys as to whether or not you can be charged with a Federal crime and lose everything you have and spend the next ten years of your life making federal furniture! For me, making a few bucks selling a few guns "off the books" isn't worth the risk that's involved!

OH, and let's not forget the IRS! They require that you report ANY income so to comply with that requirement you MUST keep records and report the sales. So now the feds have a record of your sales and the ATF can use that against you. OTOH if you choose not to report the sale and income then the IRS can send you away for a LOOONG time too!

Selling off the books is a lose-lose proposition!

 

[CoRoMo]

The ATF tried to pen this on Louis Monaco, Tony Marinelli, and John Marinucci.

http://m.clevescene.com/gyrobase/gunning-for-trouble/Content?oid=1472561

So the real questions is, whether or not the ATF is still willing to pursue these types of hobbyists, after having had their hat handed to them like that. Or... are they going to use their limited budget to solve crimes that will garner public favor for their generally abhorred agency.

 

[Joe in fla]

CoRoMo said:

So the real questions is, whether or not the ATF is still willing to pursue these types of hobbyists, after having had their hat handed to them like that. Or... are they going to use their limited budget to solve crimes that will garner public favor for their generally abhorred agency.

Hah! You should know better than to even ask that question! The ATF LOVES to bust private gun owners and hobbyist that don't have the money to defend themselves! It's an EASY bust and an EASY conviction! It would be great if ATF and other LE actually did concern themselves with only serious crime and not trivial things suck as minor paper work errors by dealers or mistakes made by hobbyist and collectors but anyone that's been around the gun business very long knows that that isn't the case! IMO when you're dealing with the ATF and ATF regulations you'd better be on the paranoid side to protect yourself. There are simply too many grey areas in the ATF regulations, the ATF is too over zealous and the penalties are too severe to consider doing otherwise.

FWIW I went through the federal court system with a buddy of mine that was busted for "constructive possession" of an NFA weapon just a couple of years ago. He eventually won but it cost him about $40,000 in lawyer's fees to do so and he lost possession of all of his guns and EVERYTHING gun related for several years and a lot of the stuff was "lost" by the dealer responsible for storing it while he was awaiting trial.

PS: I just finished reading the article at the link that you posted. The two cases are so similar that it's striking! I read that Cleveland case was in 1999, my friend's case was in 2006 so to answer your question; YES, the ATF is still up to it's usual game of busting hobbyist and collectors rather than the more difficult criminal prosecutions! As in the Cleveland case, the ATF waited two years after the arrest to prosecute my friend and they offered him the same deal; "plead guilty, take a felony conviction with NO right of appeal, give up all your guns and your gun rights and we won't send you to prison". Also like the Cleveland case, my friend said "Hell no!". When he did, they IMMEDIATELY scheduled him for trial! When I say immediately, I mean immediately! The discussion took place on a Thursday and the trial started Monday! I won't go into details but the judge threw out one charge and the jury found him not guilty on the other two others. Unlike the Cleveland case, my friend's case centered around "constructive possession" of a short barreled rifle (SBR) and "constructive possession" of a NFA weapon that the ATF alleged was in the same case as a "cane gun, sword gun or Nazi belt buckle gun" which are specifically banned by the NFA. This last was the charge that the judge threw out because the item in question was none of the above and was clearly legal by the terms of the NFA statute. Just for good measure, the ATF also charged that the alleged SBR was also a fully automatic machinegun. Not because it actually fired more than one round per trigger actuation, but because it was a SBR! (In their mind anyway!) The logic of that charge left everyone in the court (other than the ATF) speechless! after announcing the not guilty verdict, the jury was dismissed. As they were leaving several of them looked at us and then glanced at the prosecutors and ATF and just shook their heads!

I'll just add one more thing and then end this. My friend was very lucky in that he'd come into a large sum of money a couple of years before and had more than enough to hire a GOOD lawyer and get EXPERT advice. He was also single and didn't have a family to worry about. If he'd been the average Joe he would have never been able to defend himself against the ATF and the Federal government. THAT is why the ATF likes to single out the little guys for prosecution; most of them have to take the (rotten) plea deal that they offer or else go to jail for the rest of their lives and see their families left penniless! Therefore the ATF is able to use crap cases such as these to bolster their record of successful prosecutions!

 

[bobbo]

The other guy is claiming that you can buy guns to resell as long as it's not your primary source of income. So if someone is doing it to make a few grand a year, this is okay, as long as it's not your main income. He claims, that a buddy of his got cleared by the ATF after they investigated him for this since he wasn't making his "living" off of it.

WRONG!!!!! He is engaged in a business.

We had a chap in my area who sold off 300 guns from his "personal collection" a few years ago. He's now in Attica. (For those of you who don't remember, Attica is a fairly nasty state prison home to, among others, notorious serial killer "Son of Sam" and the Attica Prison riots).

I see two laws being broken:
1) The needing an FFL.
2) Conspiracy to evade federal income tax.

Add that to the state tax laws, and any state FFL licensing requirements, your buddy is either lying through his teeth about the ATF clearing him, or he's a narc. Either way, he's full of <insert your preferred word for fecal material here> and shouldn't be trusted over this topic.

 

[52grain]

OH, and let's not forget the IRS! They require that you report ANY income so to comply with that requirement you MUST keep records and report the sales. So now the feds have a record of your sales and the ATF can use that against you. OTOH if you choose not to report the sale and income then the IRS can send you away for a LOOONG time too!

Selling off the books is a lose-lose proposition!

So if I buy a gun at the going rate, shoot it for several years, then sell it for the going rate because I like model XYZ better, I have to report any gain from the sale as income?

 

[Bubbles]

So if I buy a gun at the going rate, shoot it for several years, then sell it for the going rate because I like model XYZ better, I have to report any gain from the sale as income?

In theory, if you happened to sell it for more than you paid, you have to pay tax on the gain. If the gun is treated as a "collectible" then you should pay at the capital gains tax rate (and for collectibles it's something like 28%). If you do it as a business, it's treated as business income and you pay at your normal rate. Having said that, there are very few Title I firearms that can be sold used for more than you paid.

OTOH, things are going to get interesting starting in 2012 unless Congress changes the tax code during the next 11 months. I'm going to apologize for the thread hijack...

As part of the health-care reform bill, starting in 2012 all businesses must start issuing 1099's to anyone - whether a business or individual - from whom that business purchases more than $600 in services or goods during the tax year. Currently businesses only issue 1099's to individuals (contractors) from whom they purchase more than $600 in services in a year.

So, how does this affect you, John Q Gun Owner? Well, if you sell or consign a gun with a dealer, and you get more than $600 for it, then the following year you will receive a 1099-MISC from that dealer. A copy is also sent to the IRS. It doesn't necessarily mean that the 1099-MISC represents income, but Mr. Gun Owner will have to still deal with it.

Gun dealers aren't the only ones affected. Coin dealers, pawnbrokers, and secondhand store owners/consignment shops will all have the same issues.

 

[D94R]

That's why the police, ATF and other LE use stings and snitches! Then it IS their business!

...

Selling off the books is a lose-lose proposition!

I was being facetious with the number 500 for face to face sales.

Also, I was not advocating to do it either way, which is why I asked if he was recording the sales for tax liability.


However, selling "off the books" is not lose-lose. It's a private face to face sale. Nothing illegal about that (until you argue the civil and moral penalties of not claiming income for taxing) unless you are in fact already an FFL dealer and not documenting the sales to skirt taxing and records. I have never read any bit of information, law, ruling etc that makes a 100% certainty on a set number of gun sales (face to face) that instantly turns you from a regular citizen selling a gun (or guns) into a dealer. The primise that you must be doing it to provide livelihood for you and your family is one that, even though a gray area, is more definitive than anything that points to a certain amount of sales determining you are now a dealer. The few examples given in this thread of people brought up on charges for this type of thing are only a few in a hundred, thousand, million face to face sales a year?

If your issue with "off the book" sales is indeed the lack of reporting the sale for tax purposes then ask yourself how many people fail to claim their "income" from garage sales, used car sales, used home electronic sales, or a infinite number of other things people sell daily to friends and coworkers and never claim them.


Of course, this takes me back to the original post, where if the guy is indeed buying them to turn around and sell them. Then yes the safe and probably obligatory action to take is to become an FFl and avoid all legal issues.

If, on the other hand, he is just buys a couple guns a year, and then intends to pass along one or a couple of them after he decides he doesn't want them (for profit or not), then I see where there is no issue with just selling them off and leaving the seller decide on whether he wants to claim the sales for tax purposes.

However, in the case of the original post, getting the FFL would be the wise choice.

There are just too many gray areas, legal or not, to draw a definitive conclusion here.

 

[honestlou]

In theory, if you happened to sell it for more than you paid, you have to pay tax on the gain. If the gun is treated as a "collectible" then you should pay at the capital gains tax rate (and for collectibles it's something like 28%). If you do it as a business, it's treated as business income and you pay at your normal rate. Having said that, there are very few Title I firearms that can be sold used for more than you paid.

OTOH, things are going to get interesting starting in 2012 unless Congress changes the tax code during the next 11 months. I'm going to apologize for the thread hijack...

As part of the health-care reform bill, starting in 2012 all businesses must start issuing 1099's to anyone - whether a business or individual - from whom that business purchases more than $600 in services or goods during the tax year. Currently businesses only issue 1099's to individuals (contractors) from whom they purchase more than $600 in services in a year.

So, how does this affect you, John Q Gun Owner? Well, if you sell or consign a gun with a dealer, and you get more than $600 for it, then the following year you will receive a 1099-MISC from that dealer. A copy is also sent to the IRS. It doesn't necessarily mean that the 1099-MISC represents income, but Mr. Gun Owner will have to still deal with it.

Gun dealers aren't the only ones affected. Coin dealers, pawnbrokers, and secondhand store owners/consignment shops will all have the same issues.

This is not correct. "Occasional sales" are not taxable for
federal income tax purposes. It doesn't matter if it is a
gun or any other household item.

 

[Bubbles]

Re-read my post - "collectible" gun, not your typical shooter. They are treated as other pieces of art when being bought/sold.

As for the 1099-MISC tax changes in the HCR law, a lot of small businesses are just now figuring out the implications, and they aren't happy.

 

[honestlou]

By Bubbles:
Re-read my post - "collectible" gun, not your typical shooter. They are treated as other pieces of art when being bought/sold.

But this was the question, and it was about a typical shooter:

Quote:
So if I buy a gun at the going rate, shoot it for several years, then sell it for the going rate because I like model XYZ better, I have to report any gain from the sale as income?

And you answered:

In theory, if you happened to sell it for more than you paid, you have to pay tax on the gain. If the gun is treated as a "collectible" then you should pay at the capital gains tax rate (and for collectibles it's something like 28%)...

You may be right about collectibles, although guns are not generally listed in that context. But regardless, if an individual occasionally sells a gun that he owns, it is not a taxable transaction.