Unofficially, From the NRA

As posted on The High Road:

Dear Forum Members:

Please regard this as an unofficial notice, but I thought I could help clear up what’s going on.

The Firearms and Ammunition Excise Tax (FAET) is a tax imposed by Chapter 32 of the Internal Revenue Code (26 U.S.C. 4181) on the sale of firearms and ammunition by manufacturers, producers, and importers. The present situation has arisen due to a possible misinterpretation of the term “manufactured” by the ATF. It has been difficult in the past for gunsmiths to determine exactly which services performed by gunsmiths were “manufacturing” and thus subject to FAET. Generally, gunsmiths are not subject to the FAET, unless the gunsmith has title to the firearm and his work materially changes the firearm so that a different taxable article results. See Rev. Rulings 58-586, 64-202 and 69-325.

Which specific acts (mounting a scope, re-stocking, checkering, engraving, etc.) count as “manufacturing” has been difficult to determine and inconsistently applied by ATF in the past.

To address this problem, on October 1, 2005, 26 U.S.C. Section 4182 was amended to also exempt any pistol, revolver, or firearm from FAET if it was manufactured, produced or imported by a person who manufactures, produces or imports less than an aggregate of 50 such articles during the calendar year. This allows gunsmiths to operate (for fewer than 50 guns per year) without worry that a particular act would be considered “manufacture” or not.

The 50 guns per year change, however, is not retroactive (despite our efforts to make it so). Recently gunsmiths have been aggressively investigated by ATF, and their back records examined for FAET compliance. This investigation is legal and proper, however, there is concern that ATF is again misinterpreting “manufacture” and including transactions under FAET that should properly be excluded.

Larry Crow, owner of Competitive Edge Gunworks and member of the American Pistolsmith Guild, is currently being charged as liable for taxes and penalties for the “manufacture” of firearms; Mr. Crow questions the validity of ATF’s determination that he manufactured the firearms. In meetings and discussions with the ATF and IRS beginning 24 January 2006, Mr. Crow has been unable to get a direct and consistent answer regarding both ATF and IRS policy.

The National Rifle Association is in contact with Mr. Crow and others in the gunsmithing community, and is actively exploring both regulatory and legal remedies for this situation. This situation is, however, one which may not lend itself to a quick or easy fix, as it involves statutes, regulatory rulings, and policy decisions at the intersection of two separate federal agencies.

I assure you that the National Rifle Association will make the most efficient use of its resources, with the goal of protecting the civil rights of Americans, as the Framers sought to protect those rights under the Constitution. We will provide updated information on our website as further significant details or activities become known.

Thank you for your continued support.

-Eric Swartz
Office of Legislative Counsel
National Rifle Association – Institute for Legislative Action