When does a hobby become a business?

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paradox998

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A friend often buys firearms (as well as other goods) at garage sales and then resells them. He has a pretty good number of pistols and rifles built up and is considering renting a table at a gun show to sell them. At what point does he need be a gun dealer with an FLL as opposed to a hobbyist engaged in casual sales? If he goes to the show and has say 35 firearms for sale, is he likely to have an issue with the AFT? Appreciate the advice.
 
One show, or even a couple LOCAL shows a year isn't a big deal, doing all the shows within 500 miles, *should* raise eyebrows at ATF, but based on my observation likely wont.

It becomes a business when he devotes time and attention to it with the intent of making a profit through REPEATADLY buying and selling of firearms.

In reality, there is a fine line between selling off personal guns and dealing without a license.
 
My take would be if you have arrived at the place where the "Do I need a FFL?" question is entering your head, you are questioning your own answer ~ don't. If it isn't worth the time and hastle to get the FFL-1 it isn't worth selling guns repeatedly as a 'hobbyist' either. This is the sort of thing that, right or wrong, much of the antis' energy is trained on right now--and I'd bet the ATF is keyed into such activity as well as a result.
 
The ATF must not look to hard for violators....I see at least half a dozen of the same non-FFL guys with tables holding dozens of firearms at gun shows with cardboard disclaimer signs proclaiming "private collection"...Their scrap cardboard and Sharpie scribble certainly does look all official.
 
newfalguy101 said:
One show, or even a couple LOCAL shows a year isn't a big deal, doing all the shows within 500 miles, *should* raise eyebrows at ATF, but based on my observation likely wont.
...

In reality, there is a fine line between selling off personal guns and dealing without a license.
How do you know? Can you cite some law on the subject? Exactly where is the line?

Here's a hint: no one knows where the line is. If the OP's friend is unlucky, whether or not he's crossed the line will be decided by a jury.

This has been the subject of an extensive discussion here. See this thread: What is "Dealing in Firearms Without a License?" . Note especially posts --

  • 10:
    Frank Ettin said:
    xxjumbojimboxx said:
    Is it illegal to buy a gun and sell it for profit?

    ....

    For some reason I think i saw something at one point that you needed an ffl to do that.
    Yes, at some point you need an FFL. But it's not necessarily all that clear where that point is.

    Under federal law, one needs an FFL to engage in the business of a dealer in firearms. "Engaged in the business" is defined at 18 USC 921(a)(21)(C), emphasis added:
    (21) The term “engaged in the business” means—

    (A)...

    (B) ...

    (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;...

    The operative concepts are (1) devoting time, attention and labor; (2) doing so regularly as a trade or business; (3) the repetitive purchase and resale of guns; and (4) intending to make money.

    "Livelihood" simply means:
    1: means of support or subsistence

    Nothing in the statutory definition of "engaged in the business" requires that it be one's only business or means of support. It could be a side business, a secondary business or one of several ways you have of bringing money into the household. What matters is that you're doing it regularly to make money. You don't even necessarily need to make a profit to be "engaged in business." People go into business all the time and wind up not making money. It's not that they're not engaged in business; it's just that they're not very good at it.

    But an occasional sale is not being "engaged in the business." Where is the the line between an occasional sale and the repetitive purchase and resale? That's not clear from the statutes, and I don't know if there's been any clarification judicially. I did a quick search for case law, and didn't immediately find anything. So I'll knock it off for tonight and try again tomorrow.

  • 13:
    Frank Ettin said:
    JohnKSa said:
    ...It only violates the law if this is being done as a business. The federal law specifically states that it must be done "as a regular course of trade" and that it involves the "repetitive purchase and resale of firearms". ...
    But the question is how the courts apply that. In that connection, I found the following:

    • The Third Circuit, in upholding a conviction of dealing in firearms without a license noted (U.S. v. Tyson, 653 F.3d 192 (3rd Cir., 2011), at 200-201, emphasis added):
      ...By the statute's terms, then, a defendant engages in the business of dealing in firearms when his principal motivation is economic (i.e., “obtaining livelihood” and “profit”) and he pursues this objective through the repetitive purchase and resale of firearms. Palmieri, 21 F.3d at 1268 (stating that “economic interests” are the “principal purpose,” and “repetitiveness” is “the modus operandi ”). Although the quantity and frequency of sales are obviously a central concern, so also are (1) the location of the sales, (2) the conditions under which the sales occurred, (3) the defendant's behavior before, during, and after the sales, (4) the price charged for the weapons and the characteristics of the firearms sold, and (5) the intent of the seller at the time of the sales. Id. (explaining that “the finder of fact must examine the intent of the actor and all circumstances surrounding the acts alleged to constitute engaging in business”). As 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...

    • And the Fifth Circuit noted (United States v. Brenner (5th. Cir., 2012, No. 11-50432, slip opinion), at 5-6, emphasis added):
      ...the jury must examine all circumstances surrounding the transaction, without the aid of a "bright-line rule". United States v. Palmieri, 21 F.3d 1265, 1269 (3d Cir.), vacated on other grounds, 513 U.S. 957 (1994). Relevant circumstances include: "the quantity and frequency of sales"; the "location of the sales"; "conditions under which the sales occurred"; "defendant's behavior before, during, and after the sales"; "the price charged"; "the characteristics of the firearms sold"; and, "the intent of the seller at the time of the sales". Tyson, 653 F.3d at 201.

    • The Sixth Circuit noted (United States v. Gray (6th Cir., 2012, No. 11-1305, slip opinion), at 8):
      ...However, "a defendant need not deal in firearms as his primary business for conviction." United States v. Manthey, 92 F. App'x 291, 297 (6th Cir. 2004)....

    • And in upholding Gray's conviction the Sixth Circuit also noted (Gray, at 8-9):
      ...We have previously held that evidence was sufficient to support a conviction under § 922(a)(1)(A) where it showed (1) that the defendant frequented flea markets and gun shows where he displayed and sold guns; (2) that the defendant offered to sell guns to confidential informants on multiple occasions and actually sold them three different guns on two different occasions; (3) and...that the defendant bought and sold guns for profit. See United States v. Orum, 106 F. App'x 972, 974 (6th Cir. 2004)...

    • In affirming a conviction of dealing in firearms without a license, the Ninth Circuit stated (U.S. v. Breier, 813 F.2d 212 (C.A.9 (Cal.), 1987), at 213-214, emphasis added):
      ...Courts have fashioned their own definitions of the term. For example, we have previously stated "that where transactions of sale, purchase or exchange of firearms are regularly entered into in expectation of profit, the conduct amounts to engaging in business." United States v. Van Buren, 593 F.2d 125, 126 (9th Cir.1979) (per curiam). In United States v. Wilmoth, 636 F.2d 123 (5th Cir. Unit A 1981), the Fifth Circuit stated that to prove the status of the accused as one engaged in the business of dealing in firearms, "the Government must show a greater degree of activity than the occasional sale of a hobbyist." Id. at 125. "It is enough to prove that the accused 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." Id.; accord United States v. Carter, 801 F.2d 78, 82 (2d Cir.), cert. denied, --- U.S. ----, 107 S.Ct. 657, 93 L.Ed.2d 712 (1986); United States v. Burgos, 720 F.2d 1520, 1527 n. 8 (11th Cir.1983)....

    Also, it's worthwhile to note that profits are taxable as short term or long term capital gains. But if one isn't engaged in a business some deductions ordinarily allowable as business expenses would not be allowable.

  • 21:
    Bubbles said:
    ATF is not going to be pinned down with a hard number as for whether or not buying/selling activity constitutes "dealing". However, we can look at prosecutions to find out where lines are drawn, though bear in mind that the charges filed are usually in addition to other charges (e.g. drug dealing, selling to prohibited persons, gang activity, etc).

    Nine guns in six months:
    http://www.atf.gov/press/releases/2011/05/052611-sf-salinas-man-sentenced-to-57-months-for-dealing-firearms-without-a-license.html

    Two years and at least 37 firearms:
    http://www.atf.gov/press/releases/2012/06/062012-no-jury-convicts-doyline-louisiana-man-of-dealing-firearms-without-a-license.html

    This one definitely crossed the line, the guy had many warnings both from ATF and local LE.
    http://www.atf.gov/press/releases/2012/02/022312-sea-former-police-officer-sentenced-to-prison-for-illegal-gun-sales-and-tax-crime.html
    What I found most telling about the press release was this statement:
    Some of the guns had been purchased by ALLOWAY from licensed sellers just days earlier – so they could not be considered part of a personal collection.

paradox998 said:
A friend often buys firearms (as well as other goods) at garage sales and then resells them. He has a pretty good number of pistols and rifles built up and is considering renting a table at a gun show to sell them. At what point does he need be a gun dealer with an FLL as opposed to a hobbyist engaged in casual sales? ...
And on those facts, I'd say the OP's friend has something to worry about. First, he often buys guns and resells them. Second, he has built up an inventory.
 
One rule I know is used for a business license is that if a person buys something with the intent of selling it at a profit, he is in business. That would seem pretty vague, but it isn't; "intent" is used in many laws and is not that hard to prove if someone wants to bother.

Jim
 
Jim K said:
One rule I know is used for a business license is that if a person buys something with the intent of selling it at a profit, he is in business. That would seem pretty vague, but it isn't; "intent" is used in many laws and is not that hard to prove if someone wants to bother.
Jim, we know what the rule is for being a dealer in firearms requiring a license. I've cited the applicable statute. And we know what some courts have said and how they have applied the rule in specific cases.

The difficulty is that there's no "bright-line" test or safe harbor, i. e., a set of specific, clearly defined conditions which, if satisfied, definitely get you off the hook. So the bottom line is that if a federal prosecutor, looking at the totality of the circumstances and all the factors discussed in the various cases, decides that he can first convince a grand jury that there's probable cause to believe you're buying and selling guns as a trade or business, and then convince a trial jury beyond a reasonable doubt that you're buying and selling guns as a trade or business, he very well might prosecute you.
 
I walked up to this line by accident a few weeks ago....I have a hobby of finding old Colt Pocket Hammerless pistols in sad states and having them rebuilt. My intent was to save them and collect them, shoot them, and allow others to experience them in a "like brand new" state. The first pistol has returned and was outstanding - so much so that I have been approached by several folks about maybe selling off my cast offs or even buying a few to rejuvenate and sell.

There is tremendous interest and, naturally, the first thing that crossed my mind was can I make enough money at it to justify getting aggressive about it and what are the legalities?

So, I had my corporate attorney do a little research, asked here at THR, and called the ATF about what is legal and correct, fair and possible. The answer is that unless you want to tangle with the ATF, you need an FFL and you need to know the law the very minute you decide to buy a gun and sell it for a profit. Even if you don't make a profit, the minute you buy/transfer with the intent to resell/make a profit you are in the firearms business and need to be appropriately licensed and advised to do that.

If they were candy bars, paintings, or old car parts it would be different - but they are firearms. The key here is intent and as already stated there is no "line in the sand" or clear and perfect point of reference as to what constitutes intent. But if the ATF decides, for whatever reason, you are in the firearms business you better have a plan better than "Screw them! The burden of proof is on them!" It can get expensive very quickly and no one wants to get tried and perhaps convicted and lose his rights to keep firearms.

There are lots of folks doing it that have been skating that line and many of them are even selling hundreds of guns at Gunbroker and GunsAmerica etc. over a decade or more and have never seemingly been called out.

What's the risk? Everything.....my advice is that if one decides to play the game then one should decide ahead of time to play by the rules or suffer the consequences. I have not yet decided if I want to continue to collect my renewed Pocket Hammerless pistols only as personal collection property or maybe buy a few for resale at some point. But the minute I buy one as anything other than a personal collectible pistol project I need an FFL as that would signal my intent to engage in the Firearms Business and that, right or wrong, is regulated specifically by law.

VooDoo
 
Frank,

For all your gobblygook you posted, quoting yourself and such, you said pretty much the same thing I said, except you used a whole boatload of words to do it.
 
newfalguy101 said:
...For all your gobblygook you posted, quoting yourself and such, you said pretty much the same thing I said, except you used a whole boatload of words to do it.
Actually, you most certainly were not correct in your post 2 and simply demonstrated once again that with regard to legal matters you apparently lack sufficient understanding to provide any useful advice.

So, for example, in post 2 you wrote:
newfalguy101 said:
One show, or even a couple LOCAL shows a year isn't a big deal, doing all the shows within 500 miles, *should* raise eyebrows at ATF, but based on my observation likely wont....
That is nonsense. The court decisions I cited outlined the tests, and that is not it. You could go to no gun shows, ever, and still be engaged in the business of dealing in firearms. You could go to every gun show and still not be engaged in the business of dealing in firearms.

Attending gun shows, how often and what you do at them can be factors, but your gun show practices are not determinative.

In post 2 you also wrote:
newfalguy101 said:
...It becomes a business when he devotes time and attention to it with the intent of making a profit through REPEATADLY buying and selling of firearms....
That is pretty useless. Of course that's basically what the statute says, but the real question is what that means in real life. The court decisions I cited give us some idea of how the language of the statute will be applied to what you are actually doing.

And in post 2 you wrote:
newfalguy101 said:
...In reality, there is a fine line between selling off personal guns and dealing without a license.
Whether or not the line is fine is an open question. The real point is that it's a very fuzzy line, and therefore it's difficult to be certain on what side of the line you are.
 
Buying and selling with the intent to profit will get you in a lot of hurt fast.

'Intent' will be inferred from your actions like repetition and amount of time spent.

Go ahead and push the limits.
Attorneys for Federal court are painfully expensive.
 
Years ago an acquaintance was busted for dealing without a license. Some of the things that were used against him were advertising "Guns for Sale" and "Guns Wanted". Keeping detailed records of profits and losses. Taking "returns" if the buyer decided they didn't like the gun. (As long as they bought something else.)
For all intents he was in the business and lived off the profits. I never understood why he didn't just get a FFL. At that time they were available for the asking as long as you paid the fees. (No inspections, questions about security, business licenses,etc.)
 
ColtPythonElite wrote:

The ATF must not look to hard for violators....I see at least half a dozen of the same non-FFL guys with tables holding dozens of firearms at gun shows with cardboard disclaimer signs proclaiming "private collection"...Their scrap cardboard and Sharpie scribble certainly does look all official.

If you have noticed the same half-dozen guys selling guns at various gun shows, touting the fact that they are unlicensed and are selling "off the books," then it's a fair bet that the ATF has noticed them too. ATF monitors gun shows, both openly and discreetly. It bides its time and tries to establish a pattern of repetitive dealing. Once a strong case has been developed -- a case that the agency is confident it can put before a jury -- then the agents swoop in and make the arrests. They tend to arrest multiple people at the same time, and in a highly visible manner, for the deterrent effect. And they try to get some of the subjects to inform on the others, in return for less harsh treatment. These are all well-known ATF tactics, going back decades.

The moral? When in doubt, get a license (and play by the rules). The few dollars you might make as an unlicensed gun dealer won't compensate for having your life ruined.
 
Let me just point out that an individual can buy and sell 1,000 guns a year if he wants as long as it is to upgrade his collection and not as a source of income.
The ATF will bust your balls 6 ways from Sunday if you get on their **** list but knowing the laws and not giving them any information will save you a lot of trouble and let you go about your completely legal hobby.
I've seen them try to get people to file for an FFL just so they can deny them and say, 'see, this guy IS doing it for profit, he even tried to get a license.'
 
Ryanxia said:
Let me just point out that an individual can buy and sell 1,000 guns a year if he wants as long as it is to upgrade his collection and not as a source of income....
And you know this how? Can you cite some legal authority for your claim? If you are upgrading your collection, aren't you profiting from your transactions? You certainly are if you sell or trade a gun you paid $500 for to get a gun worth $600. That is income (and is reportable to the IRS for income tax purposes).

Tossing around bad or misleading or incomplete information on legal matters can get someone who pays attention to you into serious legal trouble.
 
Frank is exactly right. The line is wherever ATF wants it to be in any particular circumstance, with the cooperation of a federal prosecutor. I have some experience in this arena and don't want to repeat the experience.

If you have any idea of buying and selling OTHER than to add an occasional gun to your collection, or to dispose of a couple you no longer have any interest in, I would urge you in the strongest terms possible to get that license.
 
Ryanxia ....I've seen them try to get people to file for an FFL just so they can deny them and say, 'see, this guy IS doing it for profit, he even tried to get a license.'
ATF cannot arbitrarily deny a license application.
Federal Firearms Licenses are "shall issue", meaning if the applicant meets the requirements and can legally operate a business, ATF will issue an FFL.
 
The ATF works more with existing paper trails than a lot of evidence they have to go out and gather themselves. One's tax returns are pretty easy to get. If all of the expenses associated with sales are deducted, they'd be more likely to think they have a case for a business.

Of course, if profits are not being declared on one's taxes, then they'll hand it off to the IRS to pursue the case for tax evasion.
 
If someone has 35 guns for sale, I would think he has jumped pretty far over the line.

Might take the BATFE some time to figure that out...or it might not.

When I was trying to figure out my ideal CHL pistol, I would buy and sell regularly, but that was an honest "buy one, sell one" (or "sell one, buy one") proposition.

Either way (IMHO) he's playing a dangerous game with a lot to lose and very little to gain.
 
As a point of clarification, you do not have to have a C&R license to be a collector. It makes it a lot simper to buy across state lines and avoid transfer fees and waiting periods. The "business" thing, as previously stated, is a gray area and can be used against you. I have a C&R. Mostly buy and keep but sell occasionally. It would be hard to prove that I am in business because my collection is usually growing. That does not mean that the BATF could not claim I was in business and make my life a living hell if an agent chose to do so. Good records are important and I keep them but I also hope I never need them.
 
orionengnr said:
If someone has 35 guns for sale, I would think he has jumped pretty far over the line....
But even then it's not certain.

Let's say someone has inherited a large collection from someone and needs cash more than he needs the guns. Or someone with a large, long standing collection, is sending one of his kids off to college and needs to turn a bunch of guns he's owned for a long time into cash. A one time dispersal of a large number of guns owned for a long time is probably going to be on the okay side of the line.

The number of guns for sale could be a factor, but will not, apparently, be, in and of itself, determinative. As the Third Circuit said (U.S. v. Tyson, 653 F.3d 192 (3rd Cir., 2011), at 200-201):
...Although the quantity and frequency of sales are obviously a central concern, so also are (1) the location of the sales, (2) the conditions under which the sales occurred, (3) the defendant's behavior before, during, and after the sales, (4) the price charged for the weapons and the characteristics of the firearms sold, and (5) the intent of the seller at the time of the sales. Id. (explaining that “the finder of fact must examine the intent of the actor and all circumstances surrounding the acts alleged to constitute engaging in business”). As 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... ....
 
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