NFA purchase from private party: advice requested

[Mendocino]

I am interested in buying a Colt factory M16 A1 or A2 and am willing to pay the ~$26K for a factory MG. There are numerous private parties with MGs on Form 4s that are willing to sell in my price range. My issue is trying to avoid fraud. The idea of sending a cashier's check to someone I don't know (but may have reasonable feedback on Gun Broker) makes me exceptionally nervous.

My knowledge of the details around machine gun serial numbers, stamping and overall markings is limited so I would like to mitigate my risk. I could go personally inspect the MG before purchase but that only addresses part of my concerns. If anyone has been in this situation I would appreciate hearing how you dealt with it.

TIA.

 

[rockhopper46038]

Ok, these suggestions don't come from someone who has purchased a factory MG on a Form 4, but has purchased some items in the same relative price range. Use an escrow service. For that kind of money, if the seller won't entertain using an escrow service, you may not want any part of that deal. If you have the ability to go inspect it, you may also want to research a reputable FFL in that area (or your area, if the seller will accompany you to the shipping company and post the item immediately upon conclusion of the deal) willing to transfer the item and keep it secure and logged until you get your stamp.

 

[Mendocino]

Thanks Rock Hopper. Any suggestions on an NFA escrow service?

 

[rockhopper46038]

If you have a lawyer you work with either personally or with a business, I would first ask them. If not, gunbroker.com specifically lists Tradiator.com on their website as an escrow service that works with firearms purchases, but I am personally not acquainted with them.

 

[Telekinesis]

you may also want to research a reputable FFL in that area ... willing to transfer the item and keep it secure and logged until you get your stamp.

That would be an illegal transfer.
To do it legally would require a form 4 from seller to the dealer, and then another form 4 from the dealer to the buyer. That's an extra transfer tax (which when paying for a MG is almost immaterial) but also DOUBLES the wait time because of the extra form 4.

You could try to speak with the seller and see if they'd be willing to accept a "half now, half upon completion" deal which could work. Another thing I've heard about when doing a private party purchase of a suppressor is to put one of those cable bike locks through the bore so that the suppressor can't be used by the seller. Not 100% guaranteed to work, but a physical impediment like that would remind them that they shouldn't be taking out the NFA weapon while the transfer is in process.

Since you're looking for a m16 and the lower is the registered piece, you could take all the other parts (even the lower parts if you like) and put a bike lock (which you have the only key to) through the mag well. It doesn't really help your concerns about outright fraud, but it would likely keep someone from playing with it while you waited on the transfer.

 

[243winxb]

M16a1

Sold one here. http://dealernfa.com/ Many listed here http://www.subguns.com/classifieds/?db=nfafirearms&category=All+Items+in+this+Category&query=category&search_and_display_db_button=on&results_format=headlines Learn about different models of M16's with serial numbers here see page 5 for update. http://www.ar15.com/forums/t_6_23/199902_Serial_number_info_on_Colt_factory_M16s_UPDATED_5_12_2013_.html&page=1 If i was spending $26,000 , i would buy from a dealer with a long business history.

 

[243winxb]

http://www.ar15.com/mobile/topic.html?b=3&f=123&t=241681&page=1 This link at www.AR15.com will help identify parts & models of M16's.

 

[AlexanderA]

Unfortunately, the NFA world has been increasingly plagued by fraudsters lately. Your best defense is to buy from a reputable dealer, although this will cost you more than if you buy from a private individual.

The escrow idea would be a good one, if you could find a seller that would go along with it. In today's market, hardly any sellers would. Likewise, arrangements such as "half now, half on completion of the deal" and/or taking all the parts except the registered receiver would be good, if the sellers would agree. But it's a sellers' market and they know thay don't have to. Your bargaining power is limited.

 

[sig228]

This is a good example of the benefit of holding a big ticket NFA item like a MG in a corporation. If you want to sell the NFA item, you can sell the stock of the corporation. Of course all the same ATF rules apply but there would be no requirement for another stamp or waiting period.

 

[JT-AR-MG42]

I am in the camp with AlexanderA on this.

My last was 7,000. I had a talk on the phone with him (he was back East) during which he dropped a few known references off to me. Sounded good, so I just sent the money.
No way to remove all risk from the deal. That is one reason there are fewer private sales and why the well advertised dealers are able to command such premiums for their name.

Maybe ask for references? The NFA GUN community is relatively small. The seller should know some stand up names to drop.

Speaking for myself, I would let you run a cable lock through the lower, but NOT take any parts with you until the transfer to your dealer was complete.
Too much hassle to find original Colt parts to replace those you took if the deal falls through.
Also no way would I use an escrow service. Not getting MY gun tied up with a third party that may place a claim on it.

Not trying to sound harsh. I would just politely tell you, the buyer, that I understand your concerns and that you should buy from someone else.


Talk to some area dealers about this. MANY more buyers back out during the now nine months wait? than sellers.


Guess I would fly over there and get a look at it and get the payment particulars hammered out. And go with my first instinct, simply;

If you do not trust the seller, do not buy from him.

JT

 

[AlexanderA]

This is a good example of the benefit of holding a big ticket NFA item like a MG in a corporation. If you want to sell the NFA item, you can sell the stock of the corporation. Of course all the same ATF rules apply but there would be no requirement for another stamp or waiting period.

At the risk of going off on a small tangent (since this is not directly relevant to the OP's question), I agree that, going forward, corporate ownership is an interesting idea to explore. The stock of the corporation could change hands, but the corporation itself would remain the owner of the MG. Hence, no "transfer" would ever take place and there would be no reason for the ATF to be involved after the initial placement of the item into corporate ownership. Of course, you would expect the government to fight such an arrangement tooth and nail, because, if successful, the arrangement would be an end run around the entire NFA and would render the regulatory system moot. This is where the "legal eagles" on our side would have to come in. But since they got trusts generally accepted (to bypass the CLEO signoff requirement), why not do the same thing with corporations? At worst (depending on how the new proposed regulations go) the "responsible parties" would have to submit photographs, fingerprints, and CLEO signature, but at least there would be no year-long approval process.

 

[dogtown tom]

sig228 This is a good example of the benefit of holding a big ticket NFA item like a MG in a corporation. If you want to sell the NFA item, you can sell the stock of the corporation. Of course all the same ATF rules apply but there would be no requirement for another stamp or waiting period.

You write this as if this is allowed.....do you have any knowledge of existing transfers done via sale of a corporation or is this conjecture?

Seems to me the legal fees involved in selling a corporation to avoid a $200 tax would cost more than the tax stamp......not to mention the possibility of tax evasion.

 

[Elkins45]

How about this: the buyer and seller go together to a bank. The seller rents a safe deposit box large enough to hold the lower, with the express written understanding that he ONLY is allowed to access the box. The seller then deposits said lower into the box along with the payment and hands the key to the buyer.

The buyer can't access without the presence of the seller (since the buyer doesn't have rights to the box) and the seller can't access it because he doesn't have the key. Once the stamp is in hand, buyer and seller meet, open the box and remove their new MG and new money respectively.

Of course, the seller could claim to have lost the key, but then there would be a record of the bank drilling the box, making him easy to prosecute for stealing an NFA item.

Thoughts? Is it possible to deny access to the box if someone has the key, or does the person have to show ID first? I've seen too many movies where Swiss banks allow you to be anonymous when opening your CIA-supplied box of cash, guns and fake ID. In America does the bank turn away a guy holding the key if he can't match ID with the name on the box?

 

[Telekinesis]

Thoughts? Is it possible to deny access to the box if someone has the key, or does the person have to show ID first? I've seen too many movies where Swiss banks allow you to be anonymous when opening your CIA-supplied box of cash, guns and fake ID. In America does the bank turn away a guy holding the key if he can't match ID with the name on the box?

I've had it go both ways. Sometimes the bank checks ID, sometimes they don't (though in all fairness I work for the corp side of the bank that holds my box, so they know me a bit better than the average customer). They are supposed to check ID, but they might not always do that. The only thing I'd worry about from a legal standpoint is that possession of the keys might be considered (by the ATF) to be possession of/ability to access the box. I don't know and I'm not a lawyer, but that would be the only legal hold up I can think of.

On the other hand as someone else mentioned above, it's a sellers market. If I was selling a machine gun there's no way I'd choose to do that when there are other who would likely give me 100% or even 50% upfront. A $25,000 item is a lot to ask to be locked away without at least some money upfront.

There are some other things to think through as well like the buyer still assuming a lot of risk (as noted the box could be drilled and the owner of the box could just take the money and leave). And checks might not be a good way to pay as a 9+ month old check requires more clearance to actually post to an account (or some banks may just refuse it and say get another one).

 

[Mendocino]

There are some good suggestions here, thanks. For me the reality of having to wait up to 30 months for my MG and have my money out that long is untenable. I suppose this is why the dealers are charging such a significant premium over the PP sales.

While I would really like a MG to shoot, I may just go buy another rental property.

 

[AlexanderA]

You might consider a semiautomatic clone, maybe with something like a slide-fire stock. In my opinion (and I own several of them), machine guns are overrated. They would have made a good investment if you had bought them years ago. Not under current conditions.

 

[Aaron Baker]

For that kind of money, I'd try the Tac-con 3MR trigger that just came out. Not full auto, but perhaps a reasonable approximation.

Aaron

 

[sig228]

DTT, its simply conjecture. What tax evasion though? Transfer tax was already paid. Double taxation is generally not something that happens with our tax system. (Ya, I know, dividends and c-corp tax is an exception). But why wouldn't it work? Buyer would have to be a qualified purchaser (non felon, etc.). And please, legal fees on a small corporate sale? Anyone can endorse over a stock certificate. No attorney necessary.

 

[dogtown tom]

sig228 DTT, its simply conjecture. What tax evasion though?

Evading Federal taxes on the transfer of an NFA firearm.
The idea of selling the corporation and its assests to avoid ATF tax stamps and the National Firearms Act reeks of evasion.

For example: even a dealer/SOT may be guilty of evading federal taxes if he is a sole proprietor and his aquisitions of NFA firearms was only for himself. (Just as using his FFL solely to enhance his personal collection is not allowed)

Transfer tax was already paid. Double taxation is generally not something that happens with our tax system.

Sure it does. Happens every time a Form 4 transfer occurs between nonlicensees.....ATF gets $200 on each and every transfer of possession. Been that way since 1934.

And ATF isn't the only one, if I purchase an item at retail in Texas I pay TX sales tax. If I sell that item through my business I collect TX sales tax on the purchase price.

Heck, buy a car out of state, pay sales tax there and move to Texas, Texas will charge you 6.25% on the value of that car.

(Ya, I know, dividends and c-corp tax is an exception). But why wouldn't it work? Buyer would have to be a qualified purchaser (non felon, etc.). And please, legal fees on a small corporate sale? Anyone can endorse over a stock certificate. No attorney necessary.

It's a change of ownership and control.
I would believe ATF would view it similiarly to how they view a change of control of licensees. ATF requires a new FFL be applied for when a dealer decides to sell his incorporated business to someone else or moves from a sole proprietor to an LLC, S Corp, etc. or vice versa.

A dealer whose business structure is a corporation, and who acquires NFA firearms doesn't "own" those firearms......his corporation does. Once he discontinues business he can transfer those NFA firearms to himself via a Form 4 and $200 tax per firearm.

And I think you are vastly underestimating the complexity of selling a corporation and its assets.

 

[AlexanderA]

I keep hearing this "tax evasion" argument made against the corporate transfer idea. I don't buy it. For one thing, tax statutes have to be strictly construed. The NFA tax is on "transfers," and in the scenario described, no "transfer" has taken place. The corporation continues to be the owner and possessor of the item. Only the individual people owning interests in the corporation have changed.

Secondly, a tax evasion charge (since it requires intent to defraud the government) can be negated by sending in a $200 payment, with an explanatory letter, to the ATF whenever the corporation changes hands. Let the ATF figure out what to do with it -- I'd bet they would just have to refund it.

Under the new regs now being considered by the ATF, "responsible persons" would have to supply photographs, fingerprints, and perhaps a CLEO signature. But that's still a far cry from the full-blown approval process.

You can't draw a parallel with change of ownership procedures for FFL's, because the FFL is a "license" while the NFA stamp is a "tax." Big difference.

Anyway, I'm not aware of any actual cases where this has been litigated. Until that happens, we're just speculating. But if some clever lawyer took this idea to court, and won, it would spawn a cottage industry of boilerplate corporations being set up just to hold NFA weapons. This is the same sort of thing that happened with the discovery of NFA trusts a few years ago.

The implications would be "interesting." It would profoundly change the whole NFA regulatory scheme, and perhaps force Congress to re-examine it.

 

[sig228]

Evading Federal taxes on the transfer of an NFA firearm.
The idea of selling the corporation and its assests to avoid ATF tax stamps and the National Firearms Act reeks of evasion.

Again, I don't see the tax evasion argument. The corporation owns the NFA item. A tax stamp is attached to the NFA item, the stamp being owned by the corporation also. Both are corporate assets. The corporate owner can do what he or she pleases with the stock. No one is selling to "evade" a tax which was already paid. Except for selling the stock to a prohibited person, I do not see a problem. What's going to happen when that corporate owner dies and passes the stock on? Of course the "proposed rules" would require different actions. Perhaps an NFA attorney can chime in here.....

 

[Arizona_Mike]

Years ago, when a registered DIAS was still around $6k a friend of mine got taken by a guy who sold the same DIAS to several people and then committed suicide. The first buyer got it, I think my friend was #2.

He ended getting two hardened steel DIASes one bought for $4k and one for $6k. Total investement (including the losses to fraud: $16--he is way ahead now). I wish I had the same foresight.

Mike

 

[pjeski]

That would be an illegal transfer.
To do it legally would require a form 4 from seller to the dealer, and then another form 4 from the dealer to the buyer. That's an extra transfer tax (which when paying for a MG is almost immaterial) but also DOUBLES the wait time because of the extra form 4.

You could try to speak with the seller and see if they'd be willing to accept a "half now, half upon completion" deal which could work. Another thing I've heard about when doing a private party purchase of a suppressor is to put one of those cable bike locks through the bore so that the suppressor can't be used by the seller. Not 100% guaranteed to work, but a physical impediment like that would remind them that they shouldn't be taking out the NFA weapon while the transfer is in process.

Since you're looking for a m16 and the lower is the registered piece, you could take all the other parts (even the lower parts if you like) and put a bike lock (which you have the only key to) through the mag well. It doesn't really help your concerns about outright fraud, but it would likely keep someone from playing with it while you waited on the transfer.

I thought the extra stamp would double the time as well. When I bought the weapon, stamps were running six months. The transfer to my dealer took less than three. Though now nine to twelve is more the norm. Anyway, form 4s to dealers apparently run quicker than those to individuals or trusts.

The seller took 1/3 down and 2/3 on approval of the stamp (but prior to shipping to my dealer). I paid the extra stamp.