Machineguns, Destructive Devices and Certain Other Firearms; Background Checks for Responsible Persons of a Trust or Legal Entity With Respect To Making or Transferring a Firearm, 2657-2723 [2016-00192]

Agencies

• Department of Justice
• Bureau of Alcohol, Tobacco, Firearms and Explosives

[Federal Register Volume 81, Number 10 (Friday, January 15, 2016)]
[Rules and Regulations]
[Pages 2657-2723]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-00192]



[[Page 2657]]

Vol. 81

Friday,

No. 10

January 15, 2016

Part VI





Department of Justice





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 Bureau of Alcohol, Tobacco, Firearms, and Explosives





27 CFR Part 479





Machineguns, Destructive Devices and Certain Other Firearms; Background 
Checks for Responsible Persons of a Trust or Legal Entity With Respect 
To Making or Transferring a Firearm; Final Rule

Federal Register / Vol. 81 , No. 10 / Friday, January 15, 2016 / 
Rules and Regulations

[[Page 2658]]


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DEPARTMENT OF JUSTICE

Bureau of Alcohol, Tobacco, Firearms, and Explosives

27 CFR Part 479

[Docket No. ATF 41F; AG Order No. 3608-2016]
RIN 1140-AA43


Machineguns, Destructive Devices and Certain Other Firearms; 
Background Checks for Responsible Persons of a Trust or Legal Entity 
With Respect To Making or Transferring a Firearm

AGENCY: Bureau of Alcohol, Tobacco, Firearms, and Explosives, 
Department of Justice.

ACTION: Final rule.

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SUMMARY: The Department of Justice is amending the regulations of the 
Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) regarding 
the making or transferring of a firearm under the National Firearms Act 
(NFA). This final rule defines the term ``responsible person,'' as used 
in reference to a trust, partnership, association, company, or 
corporation; requires responsible persons of such trusts or legal 
entities to complete a specified form and to submit photographs and 
fingerprints when the trust or legal entity files an application to 
make an NFA firearm or is listed as the transferee on an application to 
transfer an NFA firearm; requires that a copy of all applications to 
make or transfer a firearm, and the specified form for responsible 
persons, as applicable, be forwarded to the chief law enforcement 
officer (CLEO) of the locality in which the applicant/transferee or 
responsible person is located; and eliminates the requirement for a 
certification signed by the CLEO. These provisions provide a public 
safety benefit as they ensure that responsible persons undergo 
background checks. In addition, this final rule adds a new section to 
ATF's regulations to address the possession and transfer of firearms 
registered to a decedent. The new section clarifies that the executor, 
administrator, personal representative, or other person authorized 
under State law to dispose of property in an estate may possess a 
firearm registered to a decedent during the term of probate without 
such possession being treated as a ``transfer'' under the NFA. It also 
specifies that the transfer of the firearm to any beneficiary of the 
estate may be made on a tax-exempt basis.

DATES: This rule is effective July 13, 2016.

FOR FURTHER INFORMATION CONTACT: Brenda Raffath Friend, Office of 
Regulatory Affairs, Enforcement Programs and Services, Bureau of 
Alcohol, Tobacco, Firearms, and Explosives, U.S. Department of Justice, 
99 New York Avenue NE., Washington, DC 20226; telephone: (202) 648-
7070.

SUPPLEMENTARY INFORMATION:
I. Executive Summary
    A. Purpose of the Regulatory Action
    B. Summary of the Major Provisions of This Rule
    C. Costs and Benefits
II. Background
    A. Application To Make a Firearm
    B. Application for Transfer of a Firearm
    C. Transfer Tax Exemption Available
III. Notice of Proposed Rulemaking
    A. Petition
    B. Amendment of 27 CFR 479.11
    C. Amendment of 27 CFR 479.62 and 479.63
    D. Amendment of 27 CFR 479.84 and 479.85
    E. Amendment of 27 CFR 479.90
    F. Addition of 27 CFR 479.90a, Estates
    G. Transfer of Unserviceable Firearm
    H. Miscellaneous
IV. Analysis of Comments and Department Responses for Proposed Rule 
ATF 41P
    A. Comments Supporting the Rule
    B. Comments Generally Opposing the Rule
    C. Comments Addressing Specific Portions of the Rule
    D. Comments on Proposed Rule's Statutory and Executive Order 
Reviews
    E. Comments on Costs and Benefits
    F. Comments on Rulemaking Process
    G. Comments on NFA Registration and Processing
    H. Comments on Efficiencies and Priorities
    I. New Responsible Persons and Form 5320.23
V. Final Rule
VI. Statutory and Executive Order Review
    A. Executive Order 12866 and Executive Order 13563--Regulatory 
Review
    B. Executive Order 13132
    C. Executive Order 12988
    D. Regulatory Flexibility Act
    E. Small Business Regulatory Enforcement Fairness Act of 1996
    F. Unfunded Mandates Reform Act of 1995
    G. Paperwork Reduction Act

I. Executive Summary

A. Purpose of the Regulatory Action

    The current regulations at 27 CFR 479.63 and 479.85, which require 
fingerprints, photographs, and a law enforcement certification for 
individual applicants to make or transfer National Firearms Act (NFA) 
firearms, do not apply to trusts or legal entities. On September 9, 
2013, the Department of Justice (``the Department'' or DOJ) published 
in the Federal Register a notice of proposed rulemaking titled 
``Machine Guns, Destructive Devices and Certain Other Firearms; 
Background Checks for Responsible Persons of a Corporation, Trust or 
Other Legal Entity with Respect to Making or Transferring a Firearm,'' 
78 FR 55014 (ATF 41P). The proposed rulemaking amended the regulations 
in Sec. Sec.  479.11, 479.62-479.63, 479.84-479.85, and 479.90. The 
proposed regulations responded to a petition for rulemaking, dated 
December 3, 2009, filed on behalf of the National Firearms Act Trade 
and Collectors Association (NFATCA). The petitioner requested that the 
Department amend Sec. Sec.  479.63 and 479.85, as well as corresponding 
Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) Forms 1 and 
4. 78 FR at 55016-55017. The proposed regulations were intended to 
conform the identification and background check requirements applicable 
to certain trusts and legal entities to those that apply to 
individuals.
    The goal of this final rule is to ensure that the identification 
and background check requirements apply equally to individuals, trusts, 
and legal entities. To lessen potential compliance burdens for the 
public and law enforcement, DOJ has revised the final rule to eliminate 
the requirement for a certification signed by a chief law enforcement 
officer (CLEO) and instead require CLEO notification. DOJ has also 
clarified that the term ``responsible person'' for a trust or legal 
entity includes those persons who have the power and authority to 
direct the management and policies of the trust or legal entity to 
receive, possess, ship, transport, deliver, transfer, or otherwise 
dispose of a firearm for, or on behalf of, the trust or entity. In the 
case of a trust, those with the power or authority to direct the 
management and policies of the trust include any person who has the 
capability to exercise such power and possesses, directly or 
indirectly, the power or authority under any trust instrument, or under 
State law, to receive, possess, ship, transport, deliver, transfer, or 
otherwise dispose of a firearm for or on behalf of the trust.

B. Summary of the Major Provisions of This Rule

    With respect to trusts, partnerships, associations, companies, or 
corporations, this final rule defines the term ``responsible person'' 
as an individual in the organization that has the power and authority 
to direct the management and policies of the entity insofar as they 
pertain to firearms. This final rule requires that each responsible 
person complete a specified form and submit photographs and 
fingerprints when the trust or legal entity either files an application 
to make an NFA firearm, or is listed as the transferee on an 
application to transfer an NFA firearm.

[[Page 2659]]

The Department has also reassessed the need for CLEO certification and 
is implementing a new approach that focuses on notifying CLEOs. The 
final rule only requires that the applicant maker or transferee, 
including each responsible person for a trust or legal entity, provide 
a notice to the appropriate State or local official that an application 
is being submitted to ATF. An ``appropriate State or local official'' 
is the local chief of police, county sheriff, head of the State police, 
or State or local district attorney or prosecutor of the locality in 
which the applicant, transferee, or responsible person is located. In 
addition, this final rule requires responsible persons of a trust or 
legal entity to submit fingerprint cards and other identifying 
information to ATF and undergo a background check. It also adds a new 
section to ATF's regulations to address the possession and transfer of 
firearms registered to a decedent. The new section clarifies that the 
executor, administrator, personal representative, or other person 
authorized under State law to dispose of property in an estate may 
possess a firearm registered to a decedent during the term of probate 
without such possession being treated as a ``transfer'' under the NFA. 
It also specifies that the transfer of the firearm to any beneficiary 
of the estate may be made on a tax-exempt basis.

C. Costs and Benefits

    This rule requires that trusts and legal entities (e.g., 
partnerships, companies, associations, and corporations) applying to 
make or receive an NFA firearm submit information for each of their 
responsible persons to ATF to allow ATF to verify that such persons are 
not prohibited from possessing or receiving firearms. ATF estimates a 
total additional cost of $29.4 million annually for trusts and legal 
entities to gather, procure, and submit such information to ATF and for 
ATF to process the information and conduct background checks on 
responsible persons. These provisions have public safety benefits 
because they will enable ATF to better ensure that the approximately 
231,658 responsible persons within trusts and legal entities--an 
estimate based on the number of NFA applications processed by trusts or 
legal entities in calendar year 2014 multiplied by an average of two 
responsible persons per trust or legal entity--applying to make or 
receive NFA firearms each year are not prohibited from possessing or 
receiving such firearms.
    This final rule also requires that all those who apply to make or 
receive an NFA firearm, as well as all responsible persons for each 
trust or legal entity applicant or transferee, notify their local CLEO 
that an application has been filed with ATF before the applicant or 
transferee is permitted to make or receive an NFA firearm. Current 
regulations require individuals, but not trusts or legal entities, to 
obtain CLEO certification before making or receiving an NFA firearm. 
ATF estimates that the total cost of the CLEO notification requirement 
will be approximately $5.8 million annually ($0.5 million for 
individuals; $5.3 million for legal entities). The current cost of CLEO 
certification for individuals is approximately $2.26 million annually. 
Consequently, the final rule's estimated net cost increase is 
approximately $3.6 million annually. This increase, however, primarily 
involves costs to responsible persons for trusts and legal entities 
that had not previously been required to register, and will be offset 
by cost savings to individuals. ATF estimates the change in the final 
rule to a notice requirement will save individuals approximately $1.8 
million annually. This rule is not an ``economically significant'' 
rulemaking under Executive Order 12866.

II. Background

    The Attorney General is responsible for enforcing the provisions of 
the NFA, 26 U.S.C. Chapter 53.\1\ The Attorney General has delegated 
that responsibility to the Director of ATF (Director), subject to the 
direction of the Attorney General and the Deputy Attorney General. 28 
CFR 0.130(a). ATF has promulgated regulations that implement the 
provisions of the NFA set forth in 27 CFR part 479, which contains 
procedural and substantive requirements relating to the importation, 
making, exportation, transfer, taxing, identification, registration of, 
and the dealing in machineguns, destructive devices, and certain other 
firearms.
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    \1\ Provisions of the NFA discussed below refer to the 
``Secretary'' rather than the ``Attorney General''; however, the 
relevant functions of the Secretary of the Treasury have been 
transferred to the Department of Justice, under the general 
authority of the Attorney General. 26 U.S.C. 7801(a)(2); 28 U.S.C. 
599A(c)(1). For ease of reference, we will substitute ``Attorney 
General'' for ``Secretary'' when discussing these statutes.
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A. Application To Make a Firearm

    Section 5822 of the NFA, 26 U.S.C. 5822, provides that no person 
shall make a firearm unless the person has: (1) Filed with the Attorney 
General a written application, in duplicate, to make and register the 
firearm; (2) paid any tax payable on the making and evidenced such 
payment by affixing the proper stamp to the original application form; 
(3) identified the firearm to be made in the application form in such 
manner as prescribed by regulation; (4) identified the applicant in the 
application form, in such manner as prescribed by regulation, except 
that, if such person is an individual, the identification must include 
the individual's fingerprints and photograph; and (5) obtained the 
approval of the Attorney General to make and register the firearm and 
shows such approval on the application form. Applications shall be 
denied if the making or possession of the firearm would place the 
person making the firearm in violation of law. For purposes of title 
26, United States Code, the term ``person'' means ``an individual, a 
trust, estate, partnership, association, company or corporation.'' 26 
U.S.C. 7701(a)(1).
    Regulations implementing section 5822 are set forth in 27 CFR part 
479, subpart E. Section 479.62 provides, in pertinent part, that no 
person may make a firearm unless the person has filed with the Director 
a written application on ATF Form 1 (5320.1), Application to Make and 
Register a Firearm, in duplicate, and has received the approval of the 
Director to make the firearm. Approval of the application will 
effectuate registration of the firearm to the applicant. The 
application must identify the firearm to be made by serial number and 
other specified markings and information. In addition, the applicant 
must be identified on the form by name and address and, if other than 
an individual (e.g., a trust or legal entity), by the name and address 
of the principal officer or authorized representative of the trust or 
legal entity, as well as the employer identification number of the 
trust or legal entity, if applicable. If an individual, the 
identification must also include certain information prescribed in 
Sec.  479.63.
    Section 479.63 states that if the applicant is an individual, such 
person must securely attach to each copy of the Form 1, in the space 
provided on the form, a 2 x 2-inch photograph of the applicant taken 
within 1 year prior to the date of the application. The regulation also 
provides that a completed Federal Bureau of Investigation (FBI) Form 
FD-258 (Fingerprint Card), containing the fingerprints of the 
applicant, must be submitted in duplicate with the application.
    In addition, Sec.  479.63 provides that the law enforcement 
certification located on Form 1 must be completed and signed by the 
local chief of police or county

[[Page 2660]]

sheriff, the head of the State police, the State or local district 
attorney or prosecutor, or such other person whose certification may be 
acceptable to the Director. The certifying official must state, inter 
alia, that the certifying official has no information indicating that 
possession of the firearm by the maker would be in violation of State 
or local law or that the maker will use the firearm for other than 
lawful purposes. The certifying official must have jurisdiction over 
the area within which the maker resides. The purpose of this 
requirement is to ensure that the official will have access to criminal 
records concerning the maker, and knowledge of the State and local laws 
governing the transfer, receipt, and possession of the firearm by the 
maker.
    Under the current regulations, the requirements for fingerprints, 
photographs, and law enforcement certification specified in Sec.  
479.63 are not applicable to an applicant who is not an individual, 
e.g., a trust or legal entity.
    Section 479.64 sets forth the procedure for approval of an 
application to make a firearm. As specified, the Form 1 application 
must be forwarded, in duplicate, by the maker of the firearm to the 
Director, in accordance with the instructions on the form. If the 
application is approved, the Director will return the original to the 
maker of the firearm and retain the duplicate. Upon receipt of the 
approved application, the maker is authorized to make the firearm 
described therein. The maker of the firearm may not, under any 
circumstances, make the firearm until the application has been 
forwarded to the Director and has been approved and returned by the 
Director with the NFA stamp affixed. If the application is disapproved, 
the original Form 1 and the remittance submitted by the applicant for 
the purchase of the stamp will be returned to the applicant with the 
reason for disapproval stated on the form.

B. Application for Transfer of a Firearm

    Section 5812(a) of the NFA, 26 U.S.C. 5812(a), which applies to 
applications to transfer a firearm, is substantively similar to NFA 
section 5822 (described above in section II.A of this final rule). 
Regulations implementing section 5812 are set forth in 27 CFR part 479, 
subpart F. In general, Sec.  479.84 provides that no firearm may be 
transferred in the United States unless an application, ATF Form 4 
(5320.4), Application for Tax Paid Transfer and Registration of 
Firearm, has been filed in duplicate with, and approved by, the 
Director. The Form 4 application must be filed by the transferor and 
must identify the firearm to be transferred by type, serial number, and 
other specified markings and information. The application must identify 
the transferor by name and address and must include the transferor's 
Federal firearms license, if any, and special (occupational) tax stamp, 
if applicable. If the transferor is other than an individual, the title 
or status of the person executing the application must be provided. The 
application must identify the transferee by name and address and, if 
the transferee is an individual not qualified as a manufacturer, 
importer, or dealer under part 479, the person must be further 
identified in the manner prescribed in Sec.  479.85.
    Section 479.85 states that if the transferee is an individual, such 
person must securely attach to each copy of the Form 4, in the space 
provided on the form, a 2 x 2-inch photograph of the transferee taken 
within 1 year prior to the date of the application. The transferee must 
also attach to the application two properly completed FBI Forms FD-258 
(Fingerprint Card). In addition, a certification by the local chief of 
police, county sheriff, head of the State police, State or local 
district attorney or prosecutor, or such other person whose 
certification may in a particular case be acceptable to the Director, 
must be completed on each copy of the Form 4. The certifying official 
must state, inter alia, that the certifying official has no information 
indicating that the receipt or possession of the firearm would place 
the transferee in violation of State or local law or that the 
transferee will use the firearm for other than lawful purposes. The 
certifying official must have jurisdiction over the area within which 
the transferee resides. The purpose of this requirement is to ensure 
that the official will have access to criminal records concerning the 
transferee, and knowledge of the State and local laws governing the 
transfer, receipt, and possession of the firearm by the transferee.
    Under the current regulations, the requirements for fingerprints, 
photographs, and law enforcement certification specified in Sec.  
479.85 do not apply to individuals qualified as a manufacturer, 
importer, dealer, or Special (Occupational) Taxpayer (SOT) under part 
479; nor do they apply to a transferee who is not an individual, e.g., 
a trust or legal entity.

C. Transfer Tax Exemption Available

    Section 5852(e) of the NFA, 26 U.S.C. 5852(e), provides that an 
unserviceable firearm may be transferred as a curio or ornament without 
payment of the transfer tax imposed by section 5811, under such 
requirements as the Attorney General may by regulations prescribe.
    Section 5853(a) of the NFA, 26 U.S.C. 5853(a), provides that a 
firearm may be transferred without the payment of the transfer tax 
imposed by section 5811 to any State, possession of the United States, 
any political subdivision thereof, or any official police organization 
of such a government entity engaged in criminal investigations.
    Regulations implementing sections 5852(e) and 5853(a) are set forth 
in 27 CFR 479.90 and 479.91. These sections provide, in pertinent part, 
that the exemption from the transfer tax for the transfer of an 
unserviceable firearm as a curio or ornament or for a transfer to or 
from certain government entities may be obtained by the transferor of 
the firearm by filing with the Director an application, ATF Form 5 
(5320.5), Application for Tax Exempt Transfer and Registration of 
Firearm, in duplicate. The application must: (1) Show the name and 
address of the transferor and of the transferee; (2) identify the 
Federal firearms license and special (occupational) tax stamp, if any, 
of the transferor and of the transferee; (3) show the name and address 
of the manufacturer and the importer of the firearm, if known; (4) show 
the type, model, overall length (if applicable), length of barrel, 
caliber, gauge or size, serial number, and other marks of 
identification of the firearm; and (5) contain a statement by the 
transferor that the transferor is entitled to the exemption because 
either the transferor or the transferee is a governmental entity coming 
within the purview of Sec.  479.90(a) or the firearm is unserviceable 
and is being transferred as a curio or ornament. In the case of the 
transfer of a firearm by a governmental entity to a transferee who is 
an individual who is not qualified as a manufacturer, importer, dealer, 
or SOT under part 479, the transferee must be further identified in the 
manner prescribed in Sec.  479.85.

III. Notice of Proposed Rulemaking

    On September 9, 2013, ATF published in the Federal Register a 
notice of proposed rulemaking (NPRM) titled ``Machine Guns, Destructive 
Devices and Certain Other Firearms; Background Checks for Responsible 
Persons of a Corporation, Trust or Other Legal Entity with Respect to 
Making or Transferring a Firearm,'' 78 FR 55014 (ATF 41P), amending the 
regulations in Sec. Sec.  479.11, 479.62-479.63; 479.84-479.85; and 
479.90.

[[Page 2661]]

A. Petition

    The proposed regulations were in response to a petition for 
rulemaking, dated December 3, 2009, filed on behalf of the National 
Firearms Act Trade and Collectors Association (NFATCA). The petitioner 
requested that the Department amend Sec. Sec.  479.63 and 479.85, as 
well as corresponding ATF Forms 1 and 4. 78 FR at 55016-55017. The 
petition requested amendments as numbered and discussed below.
1. Request To Amend Sec. Sec.  479.63 and 479.85
    The NFATCA expressed concern that persons who are prohibited by law 
from possessing or receiving firearms may acquire NFA firearms without 
undergoing a background check by establishing a trust or legal entity 
such as a corporation or partnership. It contended that the number of 
applications to acquire NFA firearms via a trust or corporation, 
partnership, and other legal entity had increased significantly over 
the years, increasing the potential for NFA firearms to be accessible 
to those prohibited by law from having them. Therefore, for cases in 
which a trust, corporation, partnership, or other legal entity applies 
to make or receive an NFA firearm, the petitioner requested amendments 
to Sec. Sec.  479.63 and 479.85 requiring photographs and fingerprint 
cards for individuals who are responsible for directing the management 
and policies of the entity so that a background check of those 
individuals may be conducted.
    The proposed rule set forth ATF's finding that the number of Forms 
1, 4, and 5 it received from legal entities that are neither 
individuals nor Federal Firearms Licensees (FFLs) increased from 
approximately 840 in 2000 to 12,600 in 2009 and to 40,700 in 2012, 
resulting in a substantial increase in the number of individuals who 
have access to NFA firearms but who have not undergone a background 
check in connection with obtaining that access. The proposed rule 
stated that the Department agreed with the concerns underlying 
petitioner's requests, and believed that responsible persons for a 
trust or legal entity should not be excluded from background checks and 
other requirements of the regulations that seek to ensure that 
prohibited persons do not gain access to NFA firearms. The proposed 
rule also discussed an application ATF had recently denied after 
recognizing that the trust name and firearm were the same as those on a 
prohibited individual's recently denied application. The proposed rule 
noted that the application might have been approved if the trust name 
had been different from that of the prior transferee or if the 
application had included a different firearm.
2. Request To Amend Certification of Citizenship
    When filing an ATF Form 1, 4, or 5, the applicant also must submit 
ATF Form 5330.20, Certification of Compliance with 18 U.S.C. 
922(g)(5)(B). Under section 922(g)(5)(B) of the Gun Control Act, it is 
generally unlawful for an alien admitted to the United States under a 
nonimmigrant visa to ship or transport in interstate or foreign 
commerce, or possess in or affecting commerce, any firearm or 
ammunition, or to receive any firearm or ammunition that has been 
shipped or transported in interstate or foreign commerce. Section 
922(y)(2) provides for certain exceptions. If an alien who was admitted 
under a nonimmigrant visa falls within one of the specified exceptions, 
or has obtained a waiver from the Attorney General pursuant to 18 
U.S.C. 922(y)(3), appropriate documentation must be provided on Form 
5330.20.
    The proposed rule accommodated the petitioner's request that the 
information required on Form 5330.20 be incorporated into the 
requirements of 27 CFR 479.63 and 479.85 and the corresponding forms. 
According to the petitioner, ``[e]limination of the ATF Form 5330.20 by 
adding a citizenship statement to the transfer [and making] forms would 
reduce human effort for both the public and ATF while reducing funds 
expenditures for printing, copying, and handling the form.''
    The proposed rule stated that the Department supports the 
elimination of unnecessary forms and is committed to reducing the 
paperwork burden for individuals and businesses. Accordingly, the 
Department proposed amending 27 CFR 479.62 and 479.84 and the 
corresponding forms to incorporate information currently required in 
Form 5330.20.
3. Request To Revise Instructions on Forms 1, 4, and 5
    The proposed rule also accommodated the petitioner's request that 
the instructions on applications to make or transfer a firearm be 
revised so that they are consistent with those on ATF Form 7 (5310.12), 
Application for Federal Firearms License. This request appeared to be 
referring to the Form 7 instruction regarding the submission of 
photographs and fingerprint cards for responsible persons (e.g., in the 
case of a corporation, partnership, or association, any individual 
possessing, directly or indirectly, the power to direct or cause the 
direction of the management, policies, and practices of the legal 
entity, insofar as they pertain to firearms).
    The proposed rule stated that the Department agreed that proposed 
changes to the regulations would require modifications to corresponding 
Forms 1, 4, and 5, including changes to the instructions on the forms, 
and proposed to go forward with those changes.
4. Law Enforcement Certification
    Finally, the proposed rule accepted in part petitioner's request 
that the law enforcement certification requirement be eliminated and 
that ATF ``adopt a CLEO [chief law enforcement officer] process that 
will include a full NICS [National Instant Criminal Background Check 
System] check for principal officers of a trust or corporation 
receiving such firearms for the trust or corporation.'' The petitioner 
articulated several reasons in support of its request. In addition, the 
petitioner stated that ``[s]ome CLEOs express a concern of perceived 
liability; that signing an NFA transfer application will link them to 
any inappropriate use of the firearm.'' See 78 FR at 55016-55017 for 
full discussion.
    The Department agreed in principle with some of petitioner's 
assertions (for example, that ATF independently verifies whether 
receipt or possession of an NFA firearm would place the applicant or 
transferee in violation of State or local law). Id. However, ATF did 
not propose to eliminate the CLEO certification requirement. Rather, 
ATF proposed extending the CLEO certification requirement to 
responsible persons of a trust or legal entity, but also proposed 
amending the language of the certification to omit the requirement that 
the certifying official state that the certifying official has no 
information that the applicant or transferee will use the firearm for 
other than lawful purposes.

B. Amendment of 27 CFR 479.11

    In addition to the issues raised in NFATCA's 2009 petition, the 
Department proposed amending 27 CFR 479.11 to add a definition for the 
term ``responsible person.'' The proposed term included specific 
definitions in the case of a trust, partnership, association, company 
(including a Limited Liability Company (LLC)), or corporation. 
Depending on the context, the proposed term included any individual, 
including any grantor, trustee, beneficiary, partner, member, officer, 
director, board

[[Page 2662]]

member, owner, shareholder, or manager who possesses, directly or 
indirectly, the power or authority under any trust instrument, 
contract, agreement, article, certificate, bylaw, or instrument, or 
under State law, to receive, possess, ship, transport, deliver, 
transfer, or otherwise dispose of a firearm for, or on behalf of, the 
trust or entity.
    To ensure that responsible persons, as so defined, were subject to 
penalties under 26 U.S.C. 5871 for committing unlawful acts under the 
NFA (see 26 U.S.C. 5861) to the same extent as are the trusts or legal 
entities with which they are associated, the Department also proposed 
amending the definition of ``person'' in 27 CFR 479.11 to clarify that 
a ``person'' is a partnership, company, association, trust, or 
corporation, including each responsible person associated with such an 
entity; an estate; or an individual.
    Although the definition of ``person'' in Sec.  479.11 includes the 
word ``estate,'' ATF traditionally has treated estates differently from 
business entities. Therefore, the Department did not propose defining 
the term ``responsible person'' to include estates. The Department 
explained that estates are temporary legal entities created to dispose 
of property previously possessed by a decedent with the estate's term 
typically defined by the law of the State in which the decedent 
resided, whereas partnerships, trusts, associations, companies, and 
corporations are formed for a specific purpose and remain in existence 
until action is taken to dissolve them. The Department further 
explained that, historically, ATF has treated the transfer of a 
registered NFA firearm held by an estate differently from other 
transfers under the NFA. ATF has allowed the executor--or other person 
authorized under State law to dispose of property in an estate--to 
convey firearms registered to the decedent without being treated as a 
voluntary transfer under the NFA. ATF has also allowed such transfers 
to be made on a tax-exempt basis when an ATF Form 5 is submitted and 
approved in accordance with 27 CFR 479.90. When the transfer of the 
firearm is to persons who are not lawful heirs, however, the executor 
is required to file an ATF Form 4 and to pay any transfer tax in 
accordance with 27 CFR 479.84.

C. Amendment of 27 CFR 479.62 and 479.63

    With respect to an application to make a firearm, the Department 
proposed several amendments to 27 CFR 479.62 (``Application to make'') 
and 479.63 (``Identification of applicant'').
    Amendments to Sec.  479.62 proposed to:
    1. Provide that if the applicant is a partnership, company, 
association, trust, or corporation, all information on the Form 1 
application must be furnished for each responsible person of the 
applicant;
    2. Specify that if the applicant is a partnership, company, 
association, trust, or corporation, each responsible person must comply 
with the identification requirements prescribed in the proposed Sec.  
479.63(b); and
    3. Require the applicant (including, if other than an individual, 
any responsible person), if an alien admitted under a nonimmigrant 
visa, to provide applicable documentation demonstrating that the 
applicant falls within an exception to 18 U.S.C. 922(g)(5)(B) or has 
obtained a waiver of that provision.
    Amendments to Sec.  479.63, where the applicant is an individual, 
proposed to maintain the CLEO certification but omit the requirement 
for a statement about the use of a firearm for other than lawful 
purposes. This section proposed to require, instead, that the 
certification state that the official is satisfied that the 
fingerprints and photograph accompanying the application are those of 
the applicant and that the official has no information indicating that 
possession of the firearm by the maker would be in violation of State 
or local law.
    The Department stated that the CLEO's certification that the CLEO 
``is satisfied that the fingerprints and photograph accompanying the 
application are those of the applicant,'' is an existing requirement 
for an individual applicant (see 27 CFR 479.63); however, this 
certification was not reflected on the current form. ATF proposed to 
modify the Form 1 to include this certification for individuals and 
include the same certification on Form 5320.23 for responsible persons 
within a trust or legal entity.
    Additionally, amendments to Sec.  479.63, where the applicant is a 
partnership, company, association, trust, or corporation, proposed to:
    1. Provide that the applicant must be identified on the Form 1 
application by the name and exact location of the place of business, 
including the name of the county in which the business is located or, 
in the case of a trust, the address where the firearm is located. In 
the case of two or more locations, the address shown must be the 
principal place of business (or principal office, in the case of a 
corporation) or, in the case of a trust, the principal address at which 
the firearm is located;
    2. Require the applicant to attach to the application:
     Documentation evidencing the existence and validity of the 
entity, which includes complete and unredacted copies of partnership 
agreements, articles of incorporation, corporate registration, 
declarations of trust, with any trust schedules, attachments, exhibits, 
and enclosures; however, if the entity had an application approved as a 
maker or transferee within the preceding 24 months, and there had been 
no change to the documentation previously provided, the entity may 
provide a certification that the information has not changed since the 
prior approval and must identify the application for which the 
documentation had been submitted by form number, serial number, and 
date approved;
     A completed ATF Form 5320.23 for each responsible person. 
Form 5320.23 would require certain identifying information for each 
responsible person, including each responsible person's full name, 
position, Social Security number (optional), home address, date and 
place of birth, and country of citizenship;
     In accordance with the instructions provided on Form 
5320.23, a 2 x 2-inch photograph of each responsible person, clearly 
showing a full front view of the features of the responsible person 
with head bare, with the distance from the top of the head to the point 
of the chin approximately 1\1/4\ inches, and which must have been taken 
within 1 year prior to the date of the application;
     Two properly completed FBI Forms FD-258 (Fingerprint Card) 
for each responsible person. The fingerprints must be clear for 
accurate classification and should be taken by someone properly 
equipped to take them; and
     In accordance with the instructions provided on Form 
5320.23, a certification for each responsible person completed by the 
local chief of police, sheriff of the county, head of the State police, 
State or local district attorney or prosecutor, or such other person 
whose certification may in a particular case be acceptable to the 
Director. The certification for each responsible person must be 
completed by the CLEO who has jurisdiction over the area in which the 
responsible person resides. The certification must state that the 
official is satisfied that the fingerprints and photograph accompanying 
the application are those of the responsible person and that the 
certifying official has no information indicating that possession of 
the firearm by the

[[Page 2663]]

responsible person would be in violation of State or local law.
    ATF also sought public comments regarding the feasibility of asking 
CLEOs to certify that they are satisfied that the photographs and 
fingerprints match those of the responsible person and whether changes 
were needed to this proposal.

D. Amendment of 27 CFR 479.84 and 479.85

    With respect to an application to transfer a firearm, the 
Department proposed several amendments to 27 CFR 479.84 (``Application 
to transfer'') and 479.85 (``Identification of transferee'').
    Amendments to Sec.  479.84 proposed to provide that:
    1. The Form 4 application, in duplicate, must be filed by the 
transferor. If the transferee is a partnership, company, association, 
trust, or corporation, all information on the Form 4 application must 
be furnished for each responsible person of the transferee; and
    2. The type of firearm being transferred must be noted on the Form 
4. If the firearm is other than one classified as ``any other weapon,'' 
the applicant must submit a remittance in the amount of $200 with the 
application in accordance with the instructions on the form. If the 
firearm is classified as ``any other weapon,'' the applicant must 
submit a remittance in the amount of $5.
    Where the transferee is an individual, the proposed amendments to 
Sec.  479.85 retained the certification requirement but eliminated the 
requirement for a CLEO statement about the use of a firearm for other 
than lawful purposes. In addition, the proposal required the 
certification to state that the official is satisfied that the 
fingerprints and photograph accompanying the application are those of 
the applicant and that the certifying official has no information 
indicating that receipt or possession of the firearm by the transferee 
would be in violation of State or local law.
    The Department stated that the CLEO's certification that the CLEO 
``is satisfied that the fingerprints and photograph accompanying the 
application are those of the applicant,'' if an individual applicant, 
is an existing requirement (see 27 CFR 479.85) but was not reflected on 
the current Forms 4 and 5. The Department proposed having ATF amend 
Forms 4 and 5 to include certification to that effect by the CLEO for 
individuals, and include the same certification on Form 5320.23 for 
responsible persons of a legal entity.
    Amendments to Sec.  479.85, where the transferee is a partnership, 
company, association, trust, or corporation, proposed to:
    1. Provide that the transferee must be identified on the Form 4 
application by the name and exact location of the place of business, 
including the name of the county in which the business is located or, 
in the case of a trust, the address where the firearm is to be located. 
In the case of two or more locations, the address shown must be the 
principal place of business (or principal office, in the case of a 
corporation) or, in the case of a trust, the principal address at which 
the firearm is to be located;
    2. Require the transferee to attach to the application:
     Documentation evidencing the existence and validity of the 
entity, which includes complete and unredacted copies of partnership 
agreements, articles of incorporation, corporate registration, 
declarations of trust, with any trust schedules, attachments, exhibits, 
and enclosures; however, if the entity has had an application approved 
as a maker or transferee within the preceding 24 months, and there had 
been no change to the documentation previously provided, including the 
responsible person information, the entity may provide a certification 
that the information has not changed since the prior approval and must 
identify the application for which the documentation had been submitted 
by form number, serial number, and date approved;
     A completed ATF Form 5320.23 for each responsible person. 
Form 5320.23 would require certain identifying information, including 
the responsible person's full name, position, Social Security number 
(optional), home address, date and place of birth, and country of 
citizenship;
     In accordance with the instructions provided on Form 
5320.23, a 2 x 2-inch photograph of each responsible person, clearly 
showing a full front view of the features of the responsible person 
with head bare, with the distance from the top of the head to the point 
of the chin approximately 1\1/4\ inches, and which must have been taken 
within 1 year prior to the date of the application;
     Two properly completed FBI Forms FD-258 (Fingerprint Card) 
for each responsible person. The fingerprints must be clear for 
accurate classification and should be taken by someone properly 
equipped to take them; and
     In accordance with the instructions provided on Form 
5320.23, a certification for each responsible person completed by the 
local chief of police, sheriff of the county, head of the State police, 
State or local district attorney or prosecutor, or such other person 
whose certification may in a particular case be acceptable to the 
Director. The certification for each responsible person must be 
completed by the CLEO who has jurisdiction over the area in which the 
responsible person resides. The certification must state that the 
official is satisfied that the fingerprints and photograph accompanying 
the application are those of the responsible person and that the 
certifying official has no information indicating that receipt or 
possession of the firearm by the responsible person would be in 
violation of State or local law.
    ATF also sought public comments concerning the feasibility of 
asking CLEOs to certify that they are satisfied that the photographs 
and fingerprints match those of the responsible person, or whether 
changes were needed to this proposal.

E. Amendment of 27 CFR 479.90

    Section 5853(a) of the NFA, 26 U.S.C. 5853(a), provides that a 
firearm may be transferred to any State, possession of the United 
States, any political subdivision thereof, or any official police 
organization of such a government entity engaged in criminal 
investigations, without the payment of the transfer tax. Regulations 
implementing section 5853(a) are set forth in 27 CFR 479.90. That 
section provides, in pertinent part, that the transfer tax exemption 
may be obtained by the transferor of the firearm by filing with the 
Director an application on ATF Form 5 (5320.5), Application for Tax 
Exempt Transfer and Registration of Firearm, in duplicate. The 
application must provide certain information, including the name and 
address of the transferor and the transferee. In the case of a transfer 
of a firearm by a governmental entity to a transferee who is an 
individual not qualified as a manufacturer, importer, or dealer under 
27 CFR part 479, the transferee must be further identified in the 
manner prescribed in Sec.  479.85.
    The Department proposed amending Sec.  479.90(b) to remove the word 
``natural.'' Removing the word ``natural'' leaves the term ``person,'' 
which was defined in proposed Sec.  479.11 to include a partnership, 
company, association, trust, or corporation (including each responsible 
person of such entity), an estate, or an individual. Under this 
proposal, each transferee (including all responsible persons) would be 
subject to the requirements prescribed in proposed Sec.  479.85 when a 
governmental entity transfers a firearm to a partnership,

[[Page 2664]]

company, association, trust, or corporation that is not qualified as a 
manufacturer, importer, dealer, or SOT under part 479.

F. Addition of 27 CFR 479.90a, Estates

    The Department also proposed adding a new section to part 479 to 
address the possession and transfer of firearms registered to a 
decedent.\2\ The proposed new section provided that the executor, 
administrator, personal representative, or other person authorized 
under State law to dispose of property in an estate (collectively 
``executor'') may lawfully possess the decedent's NFA firearm during 
the term of probate without such possession being treated as a transfer 
from the decedent. The proposed section also sought to clarify that the 
executor may transfer firearms held by the estate on a tax-free basis 
when the transfer is to a beneficiary of the estate; however, when the 
transfer is to persons who are not lawful heirs, the executor must pay 
the appropriate transfer tax.
---------------------------------------------------------------------------

    \2\ Although the NPRM proposed to add Sec.  479.90a, see 78 FR 
at 55020, as a result of a clerical error, parts of the proposed 
rule styled the addition of the new section governing estates as a 
revision to Sec.  479.90, see, e.g., id. at 55028-29. The Department 
believes it nonetheless clearly conveyed its intention to add a new 
section to 27 CFR part 479 and not replace Sec.  479.90. Commenters 
did not appear to be confused by the mistake.
---------------------------------------------------------------------------

G. Transfer of Unserviceable Firearm

    Section 479.91 provides that an unserviceable firearm, defined in 
Sec.  479.11 as a firearm that is incapable of discharging a shot by 
means of an explosive and incapable of being readily restored to a 
firing condition, may be transferred as a curio or ornament without 
payment of the transfer tax. This section also provides that the 
procedures set forth in Sec.  479.90 must be followed for the transfer 
of an unserviceable firearm, with the exception that a statement must 
be entered on the application that the transferor is entitled to the 
exemption because the firearm is unserviceable and is being transferred 
as a curio or ornament. The Department proposed no changes to this 
section. However, the Department noted that Sec.  479.91 references the 
procedures in Sec.  479.90, which in turn references Sec.  479.85, 
thereby providing notice that changes to Sec.  479.85 would apply to 
transfers governed by Sec.  479.91.

H. Miscellaneous

    In the proposed rule, ATF recognized that the composition of the 
responsible persons associated with a trust, partnership, association, 
company, or corporation may change over time. As a result, ATF stated 
that it was considering a requirement that new responsible persons 
submit Form 5320.23 within 30 days of such a change. ATF sought 
comments on this option and solicited recommendations for other 
approaches.
    The comment period for the proposed rule closed on December 9, 
2013.

IV. Analysis of Comments and Department Responses for Proposed Rule ATF 
41P

    In response to the proposed rule, ATF received over 9,500 comments. 
Comments were submitted by citizens; individuals associated with 
trusts, corporations, and other legal entities; individuals associated 
with estates; FFLs; SOTs; silencer manufacturers; nonprofit and other 
organizations; trade associations; lawyers; collectors; hunters; and 
others.
    Several commenters supported the entire proposed rule, while the 
majority opposed the entire proposed rule. The majority of commenters 
also opposed the proposed expansion of the CLEO certification 
requirement and the new definition for a ``responsible person'' for a 
trust or legal entity. Some of the commenters who opposed the proposed 
expansion of the CLEO certification requirement and the new 
``responsible person'' definition, however, supported other portions of 
the proposed rule. The commenters' support and opposition, along with 
specific concerns and suggestions, are discussed below.

A. Comments Supporting the Rule

1. General Support for the Entire Rule
Comments Received
    More than a dozen commenters stated that they supported the 
proposed rule in its entirety. This support was based on a variety of 
reasons, including that: (1) The current regulations create a 
``loophole,'' through which prohibited persons can use a trust to 
circumvent the background check and CLEO certification requirements; 
(2) the benefit of ensuring felons and others could no longer 
circumvent background checks by submitting applications as 
representatives of a corporation or trust outweighed the ``small 
inconvenience'' the proposed rule would involve; (3) the current system 
of background checks only for individuals is inadequate to do the job 
of keeping guns out of the wrong hands; and (4) identification of and 
background checks on responsible persons would increase accountability 
for firearms regulated under the NFA.
Department Response
    The Department acknowledges the commenters' support for the 
proposed rule, which generally focuses on the importance of conducting 
background checks, particularly for individuals acquiring NFA firearms. 
This rule will require all responsible persons to provide the necessary 
information, including fingerprints, to allow ATF to conduct background 
checks through the various criminal record databases. In addition, 
individuals, as well as any responsible person associated with a trust 
or legal entity, will be required to provide notification to the local 
CLEO of the intent of the individual, trust, or legal entity with which 
the responsible person is associated, to make or acquire the NFA 
firearm identified on the form. This notification will provide the CLEO 
an opportunity to conduct any inquiries required by State law, and 
provide ATF with appropriate input regarding the lawfulness of the 
individual's or responsible person's acquisition or possession of a 
firearm.
    Regarding the commenters who desired greater accountability for NFA 
weapons, the Department notes that the NFA requires inclusion of those 
weapons in the National Firearms Registration and Transfer Record 
(NFRTR), and that the NFRTR includes firearm identification 
information, as well as the name and address of the registrant. 
Moreover, by allowing for background checks on individuals who will 
possess and control firearms on behalf of trusts or legal entities, the 
rule will deter persons who are prohibited from possessing firearms 
from attempting to use such trusts or legal entities to unlawfully 
acquire firearms.
2. Particular Support for Portions of the Rule
a. Comments Relative to Forms 5330.20, 1, 4, and 5
Comments Received
    Two commenters stated that the proposal to incorporate the 
information currently required on ATF Form 5330.20 into Forms 1, 4, and 
5 is beneficial, will reduce unnecessary paperwork, and increase 
efficiency. Another two commenters, including an FFL who is an SOT, 
supported the proposed changes eliminating the Form 5330.20 and 
incorporating the information from that form into Forms 1, 4, and 5. 
One of these commenters based his support on guidance provided by 
Executive Order 13610 of May 10, 2012 (``Identifying and Reducing 
Regulatory Burden''). Another commenter, a member of the NFATCA, stated 
that he supports the part of the proposed rule that would incorporate 
the certification of an applicant's status as a U.S. citizen, immigrant 
alien, or

[[Page 2665]]

exempt nonimmigrant alien into Forms 1, 4, and 5, and eliminate the 
requirement to attach a separate certification of compliance. Another 
commenter stated that the elimination of the Form 5330.20 by adding a 
citizenship statement to the transfer forms would reduce the ``human 
effort'' expended by both the public and ATF, and reduce the 
expenditure of public funds to print, copy, and handle that form.
Department Response
    The Department acknowledges the commenters' support for 
incorporating the certificate of compliance required to obtain the 
exemption provided by 18 U.S.C. 922(g)(5)(B) into ATF Forms 1, 4, and 
5. This change will reduce the burden on the applicant by reducing the 
number of forms the applicant must complete to acquire an NFA firearm. 
The change will also reduce the cost burden on the Department as the 
Form 5330.20 will no longer have to be printed and separately processed 
by ATF.
b. Addition of 27 CFR 479.90a, Estates
Comments Received
    Several commenters agreed with the addition of a new section in 
ATF's regulations addressing firearm transfers by estates, and 
supported the provisions regarding when a transfer occurs, and when a 
transfer tax must be paid. These commenters supported the additions 
because they increase clarity and provide specific direction for 
transfers through estates.
    Other commenters supported the proposed changes related to estates 
and transfers, but suggested that the proposed rule did not go far 
enough. One commenter recommended expanding regulations to cover all 
involuntary transfers, including transfers at the dissolution of a 
corporation or other entity, liquidation in bankruptcy, and forced 
transfers during divorce proceedings, not just those involving the 
death of the owner. Other commenters argued that although they 
supported the treatment of estates, the proposal ran afoul of the 
Department's stated purpose to require the same identification and 
background checks of individuals and legal entities, and created a 
``fundamental internal inconsistency.'' Similarly, another commenter 
suggested that trusts should be treated the same as estates, and not 
subject to the same requirements as apply to individuals. That 
commenter further stated that Sec.  479.90a should expressly address 
the role of attorneys, because issues may arise that require an 
attorney to take possession of a firearm to effectuate distribution to 
beneficiaries. This commenter also stated that a copy of the obituary 
in a recognized newspaper should be an acceptable alternative to the 
death certificate.
Department Response
    The Department acknowledges supporters' comments regarding the 
addition of Sec.  479.90a to address the possession and transfer of 
firearms registered to a decedent. The addition of this section 
clarifies that an executor, administrator, personal representative, or 
others recognized under State law may possess the firearm during the 
term of probate, which is often a concern for individuals dealing with 
the NFA firearms as part of an estate. Additionally, the rule provides 
clarification as to when a transfer tax must be paid.
    The Department does not agree that its positions with regard to 
estates should be expanded to include other types of involuntary 
transfers as part of this rulemaking. Other types of involuntary 
transfers were not addressed in the proposed rule. The Department has 
exercised its discretion to decline to expand the scope of the 
rulemaking to encompass involuntary transfers not addressed in the 
proposed rule. Should the Department determine that its position with 
regard to estates should be extended to other involuntary transfers, it 
will do so in a separate rulemaking.
    Transfers of NFA firearms from an estate to a lawful heir are 
necessary because the deceased registrant can no longer possess the 
firearm. For this reason, ATF has long considered any transfer 
necessitated because of death to be involuntary and tax-free when the 
transfer is made to a lawful heir as designated by the decedent or 
State law. However, when an NFA firearm is transferred from an estate 
to a person other than a lawful heir, it is considered a voluntary 
transfer because the decision has been made to transfer the firearm to 
a person who would not take possession as a matter of law. Such 
transfers cannot be considered involuntary and should not be exempt 
from the transfer tax. Other tax-exempt transfers--including those made 
by operation of law--may be effected by submitting Form 5. Instructions 
are provided on the form.
    The Department disagrees that Sec.  479.90a should expressly 
address the role of attorneys to effectuate distribution to 
beneficiaries. Clear rules are provided that establish who can make the 
necessary distributions and how those distributions should occur. The 
Department also disagrees with the assertion that a copy of an obituary 
in a ``recognized newspaper'' should be recognized as equivalent to a 
death certificate for purposes of the new section addressing estate 
transfers, as anyone can pay to have an obituary published in a 
newspaper. However, a death certificate is an official document issued 
by a government agency; a newspaper obituary has no equivalent 
guarantee of authenticity.
    When an individual heir is named in a will, the executor of the 
estate would file a Form 5 to effect the transfer. The heir would be 
listed on the Form 5 as the transferee and an individual heir would be 
required to submit photographs and fingerprints and be subject to a 
background check. Similarly, if the trust expires upon the death of the 
grantor, then the trustee, as the administrator of the trust, would 
file Form 5 to transfer the firearm to the individual named as the 
beneficiary. Like the heir, the beneficiary would be required to submit 
photographs and fingerprints and be subject to a background check. 
Transfers to trusts and legal entities from estates will require that 
responsible persons at those trusts and legal entities identify 
themselves in the same manner as they would in circumstances involving 
a taxable transfer. If there is no beneficiary or the beneficiary does 
not wish to possess the registered firearm, the trustee would dispose 
of the property to a person other than a trust beneficiary on an ATF 
Form 4. If, however, the trust remains a valid trust after the death of 
the grantor, the trustee would continue to administer the trust 
property according to the terms of the trust as there would be no 
transfer under the NFA.
c. Background Checks for Responsible Persons
Comments Received
    Seventy-two commenters, including members of a trade organization, 
stated in a form letter that they agree that requiring fingerprint 
cards and photographs of all adult applicants or responsible persons of 
a trust or LLC acquiring NFA firearms would ensure that NFA firearms 
are not acquired by prohibited persons. These same commenters stated 
that they oppose any expansion of the CLEO requirement. Thirty-six 
other commenters stated in a form letter that by eliminating the CLEO 
signoff and narrowing the definition of responsible persons, ATF could 
still require fingerprints and background checks on the person 
primarily

[[Page 2666]]

responsible for a legal entity application without exposing law-abiding 
citizens to what they consider to be the arbitrary and capricious CLEO 
signoff ban. Another commenter expressed the belief that the 
regulations need to be changed to expand the requirements for 
fingerprints and photographs, but only as to one responsible person, 
not every responsible person who is part of a trust or legal entity. A 
few other commenters stated that they did not oppose fingerprints, 
photographs or background checks of responsible persons, but are 
opposed to the expansion of the CLEO signoff. Several other commenters, 
including an owner of a company that manufactures firearms and firearms 
accessories, an FFL/SOT, and employees of an FFL/SOT company, stated 
that requiring background checks for trust members is appropriate, but 
that ATF should remove the CLEO signature component. Another commenter 
stated that requiring background checks, fingerprints, and photographs 
for responsible persons ``is sufficient'' and makes more sense than the 
CLEO certification requirement that nullifies the right to acquire 
firearms for personal protection. Another commenter stated that he 
supports background checks, but is unequivocally opposed to the CLEO 
signoff requirement for any NFA transfer. Another commenter stated that 
the CLEO requirement is too time consuming and outdated, but it is 
reasonable for people associated with legal entities to be subject to 
the same fingerprint-based background checks that individuals go 
through before they can obtain some of the most dangerous weapons.
Department Response
    The Department acknowledges support regarding the requirement for 
responsible persons of trusts or legal entities to submit fingerprints 
and photographs and undergo background checks. The Department agrees 
that responsible persons of trusts or legal entities should be subject 
to the same requirements as individuals acquiring an NFA firearm.
    The Department acknowledges comments regarding expansion of the 
CLEO certification requirement. The Department has changed the CLEO 
certification in the proposed rule to a CLEO notification requirement 
in the final rule for all transferees, whether individuals, trusts, or 
legal entities. See discussion infra in section IV.C.1. The Department 
also acknowledges comments regarding those who would be considered a 
responsible person for a trust or legal entity. The Department has 
changed the definition of responsible person to provide that 
responsible persons are generally those individuals in the organization 
who have the power and authority to direct the management and policies 
of the entity insofar as they pertain to firearms.

B. Comments Generally Opposing the Rule

    A few commenters disagreed with all proposed changes without 
providing any specifics. The majority of commenters who were opposed to 
the proposed rule provided specific reasons as discussed below.
1. Current Regulations Are Sufficient
Comments Received
    Many commenters stated that there are already stringent Federal 
regulations in place for the firearms covered by the proposed rule; for 
example, prohibited persons who receive or possess an NFA firearm 
through a legal entity are already violating current laws. A few 
commenters stated that these existing laws work, as shown by ATF's 
examples in the proposed rule. A few commenters objected to any 
additional firearm regulations.
    Many commenters stated that this rule only creates more ``red 
tape'' for lawful citizens. Another commenter believed that the 
``filings'' for corporations, trusts, and legal entities already 
identify a legally responsible person, and, as a result, maintained 
that the burdens of the proposed rule outweighed its benefits. Another 
commenter argued that a corporation or a trust was not a person, and 
should not be treated as one.
Department Response
    The Department acknowledges that there are existing Federal laws 
and regulations that pertain to NFA firearms and firearms more 
generally. Requiring background checks for responsible persons of 
trusts and legal entities helps to enforce those laws by keeping 
firearms out of the hands of persons who are prohibited from possessing 
them. The efficacy of background checks is evident in the statistics. 
The most recent statistics released by the Department of Justice, 
Bureau of Justice Statistics, reflect that through the end of December 
2012, background checks run through the NICS by either the FBI or State 
point-of-contact agencies resulted in about 2.4 million denials. See 
Karberg, Frandsen & Durso, Background Checks for Firearms Transfers, 
2012--Statistical Tables, at 1 (December 2014). And given that there is 
not an abundant number of NFA firearms readily accessible without going 
through the transfer process, background checks in this area should be 
expected to be highly effective in keeping NFA weapons out of the hands 
of those prohibited by law from possessing them.
    In addition, requiring background checks for responsible persons of 
trusts and legal entities conforms the requirements applicable to those 
entities to those that apply to individuals. It also maintains 
consistency with the way ATF processes applications for Federal 
firearms licenses, where responsible persons for legal entities are 
subject to background checks. See 27 CFR 478.47(b)(2).
a. Allegations That the Proposed Changes Were Motivated by Politics
Comments Received
    Many commenters stated their view that this rulemaking is motivated 
by politics and not driven by legitimate concerns. Some argued that the 
proposal was an executive ``overreach,'' represented an ``end run'' 
around Congress, and was beyond the scope of ATF's regulatory 
authority. Some commenters expressed concern that the proposed 
regulation was intended to disarm law abiding citizens.
Department Response
    The Department acknowledges that the regulation of firearms 
provokes strong feelings on all sides and that any form of firearm 
regulation is often a topic of substantial debate. The Department 
initiated this rulemaking after ATF received a petition from the 
NFATCA, a non-profit association. ATF agreed with the petitioner that 
by not requiring background checks for trusts and legal entities, the 
existing regulations created the potential for abuse. The goal--as 
stated in both the proposed rule and here--is to ensure that the rules 
regarding NFA applications that apply to individuals apply equally to 
trusts and corporate entities. By ensuring background checks are run on 
certain persons who may have access to NFA weapons, the rule is 
intended to help enhance public safety. Put simply, this rule will not 
prevent a person who can lawfully possess firearms from receiving or 
possessing NFA firearms; it was designed to prevent persons who are 
prohibited from receiving or possessing firearms from obtaining them 
through the use of trusts or legal entities not currently subject to 
the same procedures applicable to individuals. The rule will not disarm 
law abiding citizens. However, it will help ensure that persons who are 
prohibited by law from

[[Page 2667]]

possessing firearms are not able to acquire them.
    The Department also does not agree that the rule is outside of 
ATF's authority. ATF has regulated the circumstances under which NFA 
firearms are manufactured, transferred, and acquired for decades. This 
authority is based upon the authority to implement the law that 
Congress has both expressly and implicitly delegated to the Department. 
Specifically, the authority to implement the regulations requiring a 
CLEO certification have withstood challenge. See Lomont v. O'Neill, 285 
F.3d 9 (D.C. Cir. 2002). The Court, in upholding the CLEO certification 
requirement, noted that sections 5812 and 5822 of the NFA give ``the 
Secretary broad authority to promulgate regulations governing 
application forms, including regulations pertaining to the 
identification of the transferee, the transferor and the firearm,'' and 
``broad authority over the form of applications for permission to make 
firearms.'' Id. at 16. Similarly, in upholding ATF's authority to make 
destructive device determinations, another court noted that Congress 
may lawfully leave ``a certain degree of discretion to executive or 
judicial actors.'' The court noted that ATF acted lawfully in 
implementing the statutory definition, utilizing the authority 
delegated to it by Congress and the Secretary of the Treasury. Demko v. 
United States, 216 F.3d 1049, 1054 (Fed. Cir. 2000). Such authority was 
also recognized when, in construing the Gun Control Act (GCA), a court 
found that the Secretary of the Treasury was authorized to promulgate 
regulations to facilitate its enforcement. This responsibility was 
delegated within the Department of the Treasury to ATF. National Rifle 
Ass'n v. Brady, 914 F.2d 475, 477 (4th Cir. 1990).
b. Changes Are Not Necessary if Current Regulations Are Enforced
Comments Received
    Many commenters stated that it is not necessary for the Department 
to add additional rules and that the current rules are sufficient to 
ensure NFA firearms are not acquired by unauthorized individuals. Many 
commenters felt that the proposed rule fails to address crime, and 
instead simply makes it more difficult for law-abiding citizens to 
legally obtain NFA registered firearms. Many commenters stated that 
someone who wishes to obtain a firearm for criminal purposes would not 
go through the NFA application process for a legal entity, a process 
that entails expense and efforts to register such firearms with the 
Federal Government.
    One commenter noted that the proposed rule would alter the timing 
of the background check, and asserted that the timing would have a 
negative effect on safety. Currently, background checks are performed 
at the time the weapon is physically transferred; the proposed change 
would require the background check be performed at the beginning of the 
application process. This commenter stated that it currently takes 
transfer applications a year for approval, and with the proposed 
change, any arrests, convictions, or restraining orders that occur 
during this year would not be discovered and restricted persons could 
potentially obtain possession of the NFA items. Several commenters 
questioned why it takes ATF months to approve NFA applications if it 
does not currently run checks on trusts and legal entities.
    Many commenters stated that there is no ``loophole'' to close, 
arguing that nothing in the current system allows felons or otherwise 
prohibited persons to possess NFA items through trusts, corporations, 
or individually. Several commenters further added that their trust was 
constructed in a manner such that prohibited persons may not have a 
role in the trust. Other commenters noted existing requirements that 
the person picking up the NFA item must still fill out ATF Form 4473, 
Firearms Transaction Record, and pass the required NICS background 
checks at the point of sale before taking possession. Other commenters 
noted generally that it is already illegal to let unauthorized persons 
be in possession of firearms and NFA items. Others stated specifically 
that an individual who takes possession (i.e., the responsible person), 
is prohibited by State and Federal law from transferring or making that 
weapon available to anyone with a firearm restriction. In addition, a 
few commenters stated that there is not an ``underground black-market 
conspiracy'' or ``underworld entity'' circumventing NFA gun laws by 
using trusts. Several commenters stated that trusts are used by law-
abiding citizens to prevent unintentional illegal transfers; people 
creating an NFA trust are not trying to game or cheat the system or 
pass through a loophole.
    Many commenters noted that ATF's three examples provided in the 
proposed rule fail to illustrate that there is a problem to be solved 
(i.e., that a prohibited person ever gained actual possession of an NFA 
firearm by virtue of an association with a legal entity, much less 
committed a crime with that weapon). Those same commenters also 
observed that these three examples just as strongly argue that 
prohibitions and safeguards, under current law, are entirely 
sufficient. A few of these commenters asked ATF for access to the 
details of the three situations and stated that without such access, 
there are many unanswered questions and no evidence of any problem that 
existing law does not address.
    Many commenters requested ATF to leave the current regulations in 
place. Instead of proposing new rules and regulations, many commenters 
asked ATF to enforce the rules, laws, and penalties already on the 
books, and noted the small number of prosecutions resulting from NICS 
denials. A few of these commenters also requested that ATF give longer 
sentences and harsher penalties to those who break the rules. Another 
commenter noted that the current regulations are unenforceable due to 
an already ``over-taxed and under-funded and under-staffed system.'' 
Another commenter stated that ATF makes so many ``gun laws'' that the 
public cannot possibly understand them, and asked how ATF proposes to 
enforce them.
Department Response
    While the Department acknowledges that most individuals who apply 
to register and transfer an NFA firearm are not prohibited from 
possessing or receiving firearms, there have been a significant number 
of instances in which prohibited persons have submitted NFA 
applications. Information received from the ATF NFA Branch disclosed 
that from 2010 to 2014 there were approximately 270 NFA applications by 
individuals, out of 115,842 applications, that were disapproved due to 
background check denials. The NFA Branch also tracked the number of 
applications received from trusts and legal entities during the same 
period. The Department believes that the disapprovals would have been 
higher if background checks would have been conducted on responsible 
persons associated with the 217,996 applications received from trusts 
or legal entities during this time. This belief is based on the FBI's 
denial rate on NICS background checks between November 30, 1998, and 
December 31, 2014, which is approximately 1.24 percent. Additionally, 
the Department believes that the background check requirement has an 
important deterrent effect as a prohibited person would be less likely 
to try and acquire an NFA firearm knowing that the person would be 
subject to a background check.
    As a result of the increased use of trusts or legal entities to 
acquire NFA

[[Page 2668]]

firearms, the number of qualifying firearms acquired without a 
background check has greatly increased. Between 2004 and 2014, the 
number of NFA applications received from trusts or legal entities 
increased from 1,938 to 90,726. In 2013 and 2014, ATF received a 
combined total of 162,759 applications from trusts or legal entities.
    The Department does not agree that the proposed regulations are 
unnecessary. Background checks required under the Brady Act (18 U.S.C. 
922(t) and 27 CFR 478.102), as part of the licensing process (18 U.S.C. 
923(d)(1)(B) and 27 CFR 478.47(b)(2)), and the application process for 
individuals submitting applications to make or receive an NFA firearm 
(26 U.S.C. 5812 and 5822, 27 CFR 479.63 and 479.85) are in place to 
prevent prohibited persons from unlawfully acquiring firearms. The 
proposed rule is similarly intended to prevent prohibited persons from 
acquiring firearms by closing down an avenue that can be exploited.
    The Department acknowledges that there is a backlog of NFA 
applications, and notes that the backlog has decreased over the last 
year. ATF processes applications as quickly as its resources allow.
    The Department agrees with the commenters that the existing laws 
should be enforced, and the Department is committed to focusing its 
limited prosecutorial resources on the most significant violent crime 
problems facing our communities. That said, enforcement must be paired 
with common-sense regulatory efforts to help limit access to firearms 
by persons prohibited from possessing them. This rule is intended to do 
just that.
    The Department acknowledges that the person picking up the NFA item 
must still fill out ATF Form 4473, Firearms Transaction Record, and 
pass a NICS background check at the point of sale before taking 
possession. Such a background check on the person picking up the 
firearm would verify that that individual is not a prohibited person, 
but it would not verify that other people who are responsible persons 
of a trust or legal entity are not prohibited.
    The Department does not regard time-of-transfer background checks 
as sufficient to comply with the transfer provision of the NFA. The 
Department interprets that provision to require that background checks 
precede the transfer of NFA firearms. Specifically, the statute 
provides that a firearm ``shall not be transferred unless'' the 
Secretary has approved the application, and that an application ``shall 
be denied if the transfer, receipt, or possession of the firearm would 
place the transferee in violation of law.'' 26 U.S.C. 5812(a). The 
Department construes that language to mean that background checks for 
individuals and responsible persons must be conducted before the 
application is approved. Additionally, this provision requires that an 
individual's ``identification must include his fingerprints and his 
photograph.'' Id. A NICS background check does not satisfy the 
statute's biometric language (fingerprint cards) requirement. The 
submission of fingerprints allows a more robust check of criminal 
history databases and provides a means of eliminating false negative 
and false positive matches. For example, the relevant individual may 
have a disqualifying criminal record under another name.
    The Department does not agree that the proposed rule would alter 
the timing of the background check. Background checks under the 
statute's transfer provision are not currently performed at the time 
the weapon is physically transferred, as the commenter suggested. 
Rather, background checks are currently performed before an application 
is approved and will continue to be performed in the same manner. With 
respect to the commenter's concern that delay in processing 
applications might mean that an individual will become a prohibited 
person while awaiting a background check, the agency has two responses. 
First, because nothing about the Department's method of processing 
applications will change because of this rule, the Department believes 
the commenter's concern is outside the scope of this rulemaking. 
Second, processing times for applications reflect the delay between the 
time the application is received by the NFA Branch and the time the 
application is entered into the NFRTR and processed. As the background 
check is not conducted until after the information is entered into the 
NFRTR, any prohibitions that may have occurred after the applicant 
mailed the application will be disclosed when the background check is 
conducted.
c. Criminal Activity Assertions Are Not True
i. The NFA and Impact on Crime
Comments Received
    Many commenters stated that these restrictions will not reduce 
crime and questioned whether violent crimes have been committed with 
registered NFA items, or by responsible persons of a trust or legal 
entity. Several commenters asked if ATF could provide the statistics 
demonstrating the need for the regulations and direct link between the 
proposed rule and enhanced public safety.
    Many other commenters observed that NFA items are expensive, 
already heavily regulated, and ``virtually unheard of'' in the hands of 
criminals. Although commenters disagreed on the number of crimes they 
believe have been committed with registered NFA weapons, those 
addressing the subject agreed that the number was small, and argued 
that the proposed rule would accordingly have little to no effect on 
public safety.
Department Response
    The Department disagrees that it must show a direct link between 
the proposed rule and enhanced public safety. Congress has directed the 
Department to ensure that individuals who are prohibited from 
possessing NFA firearms do not obtain them, even if those individuals 
have no intention of using them in an unlawful manner. See 26 U.S.C. 
5812(a) (``Applications shall be denied if the transfer, receipt, or 
possession of the firearm would place the transferee in violation of 
law''); 26 U.S.C. 5822 (``Applications shall be denied if the making or 
possession of the firearm would place the person making the firearm in 
violation of law.''). The Department regards the appropriate question 
to be whether the rule will better ensure that prohibited individuals 
do not unlawfully possess NFA firearms, not whether individuals who 
possess firearms are likely to use them to commit crimes.
    Additionally, the Department notes that some individuals who own 
NFA firearms do in fact commit crimes. A review of trace data and 
criminal records from 2006 to 2014 disclosed twelve incidents in which 
owners of NFA firearms were convicted of crimes; however, there is no 
evidence that these crimes were committed with NFA firearms. 
Convictions include attempted homicide, conspiracy to commit felony 
offenses of firearms laws, operating a drug involved premises, 
possession of unlawful firearms, possession of marijuana, intent to 
distribute methamphetamine, possession of a firearm during commission 
of drug trafficking, domestic violence, theft, dealing firearms without 
a license, and possession of an unregistered NFA firearm.
    In one instance the purchaser was arrested 9 days after the 
purchase of the firearm. In another instance the purchaser was arrested 
within 3 months of the purchase of the firearm. Both purchasers were 
convicted of drug related charges.

[[Page 2669]]

    The Department acknowledges that the majority of firearms traced 
are handguns. However, between 2006 and 2013, local or Federal law 
enforcement recovered and ATF traced 5,916 NFA firearms. ATF is 
authorized to trace a firearm for a law enforcement agency involved in 
a bona fide criminal investigation. There were also at least seven 
instances in which the possessor of the firearm at the time it was 
traced was not the person it was registered to in the NFRTR. Under 
Federal law, possession of an NFA firearm by a person to whom it is not 
registered is unlawful (26 U.S.C. 5861(d)).
    The Department also emphasizes that NFA weapons are dangerous 
weapons that can empower a single individual to take many lives in a 
single incident. Therefore, a low incidence of the use of NFA firearms 
in crimes does not reflect the threat to public safety that they pose. 
A low usage of NFA firearms in crime may also bespeak the success of 
the NFA in preventing such weapons from reaching the hands of 
prohibited persons in the past. The large increase in transfers in 
which no background check takes place, however, increases the risk that 
NFA firearms will reach prohibited persons. The Department does not 
believe it is reasonable to wait for an NFA firearm to be used in a 
significant criminal incident before crafting procedures reasonably 
calculated to carry out its regulatory mandate to prevent prohibited 
persons from obtaining NFA firearms.
ii. The NFA and Associated Background Checks for Transactions Involving 
a Trust or Legal Entity
Comments Received
    Many commenters stated that the proposed rule is misleading because 
it suggests that there are no background checks currently required for 
trusts or legal entities when, in fact, the person who picks up an NFA 
item from a licensed dealer on behalf of a trust or legal entity must 
complete a Form 4473 and undergo an individual NICS background check 
prior to taking possession of the NFA item. Some of these commenters 
provided specific language from ATF's NFA Handbook as support for their 
point.
Department Response
    The Department acknowledges that ATF procedures currently require 
that FFLs run a background check on any person picking up a firearm on 
behalf of a trust or legal entity. However, this ensures only that the 
direct recipient from the FFL is not a prohibited person. It does not 
verify the status of the other responsible persons associated with a 
trust or legal entity who will have access to the firearm. Thus, this 
rule will help ensure that many persons with access to the firearm are 
neither prohibited possessors nor otherwise ineligible for such access. 
With the implementation of the rule, responsible persons for trusts and 
legal entities will undergo a background check as part of the 
application process. Therefore, a responsible person will not have to 
undergo a background check at the time of the transfer from the FFL.
d. Individuals Do Not Create Trusts or Legal Entities to Avoid 
Background Checks
Comments Received
    Many commenters stated that the proposed rule mistakenly contends 
that individuals create trusts or legal entities solely to avoid 
background checks when acquiring NFA items. These commenters offered 
other valid reasons (e.g., for estate planning; to comply with laws and 
regulations associated with the NFA, especially by preventing 
accusations or criminal charges involving constructive possession; as 
the only available mechanism for acquiring NFA items for individuals 
who reside in a locale where CLEO certification is unobtainable).
Department Response
    The Department is unable to assess the reason(s) for the recent 
exponential growth in the use of trusts, in particular, to acquire NFA 
firearms, and the proposed rule made no claim about the extent to which 
such trusts are being used predominantly to circumvent the background 
check requirement for individuals, as opposed to for other reasons. But 
the use of trusts has grown exponentially, and as a result so have the 
number of persons gaining access to NFA firearms without undergoing a 
background check. Regardless of their motive, the Department does not 
believe that responsible persons of trusts or legal entities should be 
excluded from the background check and other requirements that seek to 
ensure prohibited persons do not gain access to NFA firearms.
    Additionally, the Department notes that it believes that even if 
individuals are not frequently exploiting the potential loophole in the 
statute, the existence of the loophole invites future exploitation. The 
Department regards it as wise to close the loophole to eliminate the 
opportunity for future evasion of the individual background check 
requirement, even if the tactic has not yet come into common use.
2. Rule Differs From NFATCA Petition
Comments Received
    Some commenters noted that NFATCA's petition asked ATF to amend 
Sec. Sec.  479.63 and 479.85 to, among other things, require 
photographs and fingerprints of persons responsible for directing the 
legal entity, eliminate the requirement for CLEO approval of Forms 1 
and 4 for natural persons, and require notification to CLEOs for all 
Form 1 and Form 4 applicants. One commenter noted that the proposed 
rule differed from the petitioner's request by adding CLEO 
certification requirements, not removing them. Another commenter 
observed that the proposed rule did largely what the petitioner 
requested by expanding requirements for all responsible persons 
involved with corporations and trusts; however, the proposed rule 
lessened--but did not entirely eliminate--CLEO certification 
requirements. Several commenters referenced NFATCA's letter, dated 
August 31, 2013, in which NFATCA said that it supports the elimination 
of the CLEO certification requirement, but does not support the 
proposed rule in its current form. The NFATCA letter states, in part, 
that ``[t]he Executive Branch proposals unduly burden the law-abiding 
public, will restrain lawful commerce and bury an already overwhelmed 
agency with an administrative infrastructure that will not serve the 
public safety interest.''
    NFATCA also submitted a public comment to the rulemaking, stating 
that the proposed rule bears little resemblance to its petition, or to 
changes that NFATCA discussed with ATF and that were published in 
``ATF's Unified Agenda repeatedly over the past several years'' \3\ for 
Regulation Identification Number (RIN) 1140-AA43.
---------------------------------------------------------------------------

    \3\ This commenter's footnote stated ``See Unified Agenda, RIN 
[Regulation Identifier Number] 1140-AA43 (Fall 2011); RIN 1140-AA43 
(2012).'' The Department notes that these published abstracts stated 
that this rulemaking proposed to require, among other things, ``that 
a copy of all applications to make or transfer a firearm be 
forwarded to the [CLEO] of the locality in which the maker or 
transferee is located'' and to eliminate ``the requirement for a 
certification signed by the [CLEO].''
---------------------------------------------------------------------------

Department Response
    The Department acknowledges that in proposing to extend CLEO 
certification rather than notification requirements, and not 
eliminating all CLEO involvement, the proposed rule differed not only 
from material contained in the published abstracts of RIN 1140-AA43 in 
the 2011 and 2012 Unified Agendas, but also from what the petition

[[Page 2670]]

requested. See supra note 3. However, the Department notes that the 
intent of the Unified Agenda is to provide data on regulatory and 
deregulatory activities under development throughout the Federal 
Government. The activities included in individual agency agendas are 
primarily those currently planned to have a proposed rule or a final 
rule issued within the next 12 months. This does not mean that ATF, or 
any other agency, cannot change the direction of a proposed rulemaking 
if circumstances warrant. In addition, when ATF issued the proposed 
rule, ATF believed that the proposed requirements to extend CLEO 
certification would enhance public safety without overly burdening the 
public. However as is discussed infra in section IV.C.1, the Department 
has reassessed the need for CLEO certification and has implemented a 
new approach that focuses on notifying CLEOs, and requires responsible 
persons of a trust or legal entity to submit fingerprint cards and 
undergo a background check. See section IV.C.1 for discussion of the 
reasons for this change.
    The Department agrees that a change from a CLEO certification to 
CLEO notification will require a change to the Forms 1, 4, and 5. See 
section IV.C.1 for further discussion.
3. Constitutional and Statutory Arguments
a. Violates the Second Amendment
Comments Received
    Hundreds of commenters stated that the proposed rule violated and 
infringed their Second Amendment rights. Many commenters stated the 
proposed rule further eroded and encroached on such rights as they 
believe that the NFA--with some also adding the GCA--is 
unconstitutional and already unconstitutionally infringes the rights 
protected by the Second Amendment. Many commenters referenced the 
Supreme Court's decision in District of Columbia v. Heller, 554 U.S. 
570 (2008), which found that the Second Amendment protects an 
individual--not a collective--right to keep and bear firearms.
    Numerous commenters specifically connected the perceived Second 
Amendment infringement to the CLEO certification requirement, as some 
CLEOs are represented as being unwilling to sign off on applications, 
regardless of the applicant's background, or the legality of the NFA 
item in the applicant's jurisdiction. See infra section IV.C.1.c for a 
detailed discussion of this issue. These same commenters pointed out 
that the proposed rule, by extending the CLEO certification requirement 
to responsible persons of trusts or corporations and legal entities, 
removes the ``gun trust'' option, which does not require CLEO 
certification and thereby effectively bans law abiding citizens from 
exercising their Second Amendment rights, i.e., constitutes a de facto 
ban.
    A commenter focused particularly on silencers, which are included 
in the definition of firearm under the NFA. 26 U.S.C. 5845(a). This 
commenter provided data showing the benefits of silencers (e.g., 
hearing protection), and that the situation is different from when the 
NFA was enacted--that is, silencers are no longer dangerous or unusual 
and are typically possessed by law-abiding citizens--and accordingly, 
merit constitutional protection under the Second Amendment. This 
commenter stated that 39 States permit private citizens to own and 
possess silencers, and more than 30 States permit their use in some 
form of hunting. This same commenter argued that short-barreled 
shotguns (SBSs), short-barreled rifles (SBRs), and any other weapons 
(AOWs) should not be controlled under the NFA because they are no more 
dangerous than conventional shotguns and rifles, they are commonly used 
by law enforcement and the military, and are favorably suited for law-
abiding citizens to use in self-defense.
Department Response
    The Department notes that the NFA regulates weapons such as 
machineguns, short-barreled rifles, short-barreled shotguns, silencers, 
destructive devices, which include such items as grenade launchers, as 
well as firearms meeting the definition of ``any other weapon,'' which 
include disguised devices such as penguns, cigarette lighter guns, 
knife guns, cane guns and umbrella guns. See 26 U.S.C. 5845.
    The Department does not believe that the proposed regulation 
violates, erodes, or otherwise infringes any rights protected by the 
Second Amendment. The Supreme Court and several Courts of Appeal have 
recognized, ``the right to keep and bear arms has never been 
unlimited.'' Nat'l Rifle Ass'n (NRA) v. ATF, 700 F.3d 185, 200 (5th 
Cir. 2012) (quoting Heller, 554 U.S. at 626). The Supreme Court noted 
explicitly in Heller that the Second Amendment did not extend to 
``dangerous and unusual weapons'' not in ``common use.'' 554 U.S. at 
627; see also United States v. Miller, 307 U.S. 174, 178-79 (1939) 
(regarding short-barreled shotguns). Courts of Appeals have 
consistently found NFA weapons to be ``dangerous and unusual.'' See 
United States v. Henry, 688 F.3d 637, 640 (9th Cir. 2012); Heller v. 
District of Columbia (``Heller II''), 670 F.3d 1244, 1263 (D.C. Cir. 
2011); United States v. Marzzarella, 614 F.3d 85, 94 (3d Cir. 2010); 
Hamblen v. United States, 591 F.3d 471, 473-74 (6th Cir. 2009); United 
States v. Tagg, 572 F.3d 1320, 1326 (11th Cir. 2009); United States v. 
Fincher, 538 F.3d 868, 874 (8th Cir. 2008). Moreover, even if one 
assumes that NFA weapons are of the type protected by the Second 
Amendment, the Department believes that NFA statutory requirements 
imposed on the these weapons would be considered longstanding 
presumptively lawful regulations or restrictions and permissible under 
the Second Amendment given the Supreme Court's rulings in Heller, 554 
U.S. 570, and Miller, 307 U.S. 174, and circuit court rulings, such as 
in NRA, 700 F.3d 185. Finally, even if the NFA's statutory 
requirements--or the requirements imposed by this regulation--are not 
considered longstanding, the Department believes that they would 
withstand constitutional scrutiny.
    The Department's position is that the Second Amendment, properly 
construed, allows for reasonable regulation of firearms. Heller 
emphasized the importance of ``prohibiting the carrying of `dangerous 
and unusual weapons' '' in defining the limitation on the Second 
Amendment right, explaining that the Second Amendment would not prevent 
the ban of the ``weapons that are most useful in military service--M-16 
rifles and the like. . . .'' Heller, 554 U.S. at 627; id. at 627-28.
    In addition, although the Court did not purport to define the full 
scope of the Second Amendment right in Heller, the Court did consider 
United States v. Miller, 307 U.S. 174, which ``upheld against a Second 
Amendment challenge two men's federal indictment for transporting an 
unregistered short-barreled shotgun in interstate commerce, in 
violation of the National Firearms Act.'' Heller, 554 U.S. at 621-22 
(citation omitted). Heller explained that the Miller Court's ``basis 
for saying that the Second Amendment did not apply'' was that the type 
of weapon at issue was not eligible for Second Amendment protection.

    In the absence of any evidence tending to show that the 
possession or use of a [short-barreled shotgun] at this time has 
some reasonable relationship to the preservation or efficiency of a 
well-regulated militia, we cannot say that the Second Amendment 
guarantees the right to keep and bear such an instrument. Certainly 
. . . it is not within judicial notice that this weapon is any part

[[Page 2671]]

of the ordinary military equipment or that its use could contribute 
to the common defense.

Id. at 622 (quoting Miller, 307 U.S. at 178) (emphasis in Heller). Of 
particular importance to this rulemaking, the Heller Court further 
stated:

    We may as well consider at this point (for we will have to 
consider eventually) what types of weapons Miller permits. Read in 
isolation, Miller's phrase ``part of ordinary military equipment'' 
could mean that only those weapons useful in warfare are protected. 
That would be a startling reading of the opinion, since it would 
mean that the National Firearms Act's restrictions on machineguns 
(not challenged in Miller) might be unconstitutional, machineguns 
being useful in warfare in 1939. We think that Miller's ``ordinary 
military equipment'' language must be read in tandem with what comes 
after: ``[O]rdinarily when called for [militia] service [able-
bodied] men were expected to appear bearing arms supplied by 
themselves and of the kind in common use at the time.'' The 
traditional militia was formed from a pool of men bringing arms ``in 
common use at the time'' for lawful purposes like self-defense. ``In 
the colonial and revolutionary war era, [small-arms] weapons used by 
militiamen and weapons used in defense of person and home were one 
and the same.'' Indeed, that is precisely the way in which the 
Second Amendment's operative clause furthers the purpose announced 
in its preface. We therefore read Miller to say only that the Second 
Amendment does not protect those weapons not typically possessed by 
law-abiding citizens for lawful purposes, such as short-barreled 
shotguns.

Id. at 624-25 (emphasis added) (internal citations and quotations 
omitted). Heller thus explicitly recognized an ``important limitation 
on the right to keep and carry arms . . . the sorts of weapons 
protected [are] those `in common use at the time.' '' Id. at 627 
(quoting Miller, 307 U.S. at 179).
    In NRA, the Fifth Circuit acknowledged Heller's ``non-exhaustive 
list'' of ``presumptively lawful regulatory measures,'' 700 F.3d 185, 
197 (5th Cir. 2012) (citing 554 U.S. at 626-27). The Fifth Circuit held 
that firearm restrictions that are longstanding, like the NFA, are not 
likely to burden a person's rights under the Second Amendment. See id. 
at 196; see also Heller II, 670 F.3d at 1253 (``[A] regulation that is 
`longstanding,' which necessarily means it has long been accepted by 
the public, is not likely to burden a constitutional right; 
concomitantly the activities covered by a longstanding regulation are 
presumptively not protected from regulation by the Second 
Amendment.'').
    Like the restrictions on machineguns, the Department believes that 
other longstanding Federal restrictions on making and transferring 
SBSs, SBRs, silencers, and AOWs are ``firmly historically rooted'' and 
will not burden Second Amendment rights given the Court's holding in 
Heller regarding presumptively lawful regulatory measures. See NRA, 700 
F.3d at 204; United States v. One Palmetto State Amory PA-15 
Machinegun, No. 15-2202, 2015 U.S. Dist. LEXIS 95302 (E.D. Penn. 2015) 
(holding that the Second Amendment does not create a right to possess a 
machinegun), and Hollis v. Lynch, No. 3:14-CV-03872-M, 2015 U.S. Dist. 
LEXIS 103656 (N.D. Tex. 2015) (holding that the Second Amendment does 
not create a right to make machineguns).
    Finally, even if a court were to conclude that the NFA and its 
implementing regulations are not ``presumptively lawful,'' they would 
nevertheless pass constitutional muster under existing Second Amendment 
jurisprudence. The NFA and this final rule are not a ban on NFA items, 
as some commenters suggest. Rather they are reasonable regulations on 
the possession of such weapons that the Department believes are 
consistent with the Second Amendment.
    In response to those commenters who seek the repeal of the NFA and 
a different treatment for certain NFA weapons, like silencers, the 
Department cannot repeal the NFA, nor can it choose to ignore 
provisions of the act for certain weapons, or minimize the burden of 
the statutory language for certain weapons, such as, silencers, SBSs, 
SBRs, and AOWs. The statute neither requires nor is best read as 
permitting disparate treatments of NFA firearms in the manner suggested 
by the comments.
    Assuming, arguendo, that silencers are within the protection of the 
Second Amendment in the first place, they do not qualify for heightened 
Second Amendment protection. To the contrary, silencers were included 
in the original draft of the NFA in 1934, and have a long regulatory 
history. See United States v. Gonzales, No. 2:10-CR-00967 CW, 2011 U.S. 
Dist. LEXIS 127121 (D. Utah 2011) (describing legislative history 
surrounding 1934 enactment of the NFA). Because silencers, SBSs, and 
SBRs are statutorily defined as NFA firearms, they are regulated in the 
same manner as the other NFA weapons.
    Although the CLEO certification process has been upheld by courts 
as a reasonable regulation (see, e.g., Lomont, 285 F.3d 9), the 
Department is not requiring such a certification in this final rule. 
Instead, the final rule contains a CLEO notification provision, 
requiring applicants to provide notification to the CLEO. Thus, the 
concern expressed by many commenters that the CLEO certification 
provision in the rulemaking will effectively ban the transfer and 
making of NFA weapons is moot; likewise, commenters' concerns about the 
alleged arbitrary and capricious nature of the CLEO certification 
process in some jurisdictions are also moot.
b. Violates the Fourth Amendment
Comments Received
    One commenter stated that the wait time for ATF to approve NFA 
transfers is excessive, and that the proposed rule imposes additional 
restrictions. The commenter stated that these restrictions deprive him 
of the use of his legally obtained property, and violate the Fourth 
Amendment as they are a ``de facto seizure.'' Another commenter 
provided an example in which a county sheriff publicly stated that he 
would possibly provide CLEO certification, on the condition that the 
applicant ``pass a background check'' and ``allow the Sheriffs (sic) 
Department to inspect the home where the weapon will be stored.'' This 
commenter stated that this ``safety inspection'' blatantly violated the 
Fourth Amendment protection against unreasonable searches.
Department Response
    The Department believes that the law provides that applicants do 
not have a property interest in the NFA firearm sought during the 
application period. Therefore, an NFA firearm is not the property of a 
transferee until the transferor receives a properly approved NFA Form 
4.
    The Department takes the view that individuals, trusts, and legal 
entities do not obtain a property interest in an NFA firearm until the 
Department has approved an application to make or transfer one. A 
``protected property interest simply `cannot arise in an area 
voluntarily entered into . . . which, from the start, is subject to 
pervasive Government control.' '' Dennis Melancon, Inc. v. City of New 
Orleans, 703 F.3d 262, 272 (5th Cir. 2012); see also Hearts Bluff Game 
Ranch, Inc. v. United States, 669 F.3d 1326, 1330 (Fed. Cir. 2012) 
(same). In light of the comprehensive scope of Federal firearms 
regulation, the NFA and GCA delineate such an area of pervasive control 
when it comes to the acquisition or manufacture of such firearms. See 
Mitchell Arms, Inc. v. United States, 7 F.3d 212, 216 (Fed. Cir. 1993). 
Moreover, several courts have held that a property interest is lacking 
where the alleged property is not accompanied by the ``crucial indicia 
of property rights,''

[[Page 2672]]

such as the right to assign, sell, or transfer the property at issue. 
Gonzalez v. NOAA, 695 F. Supp. 2d 474, 504 (S.D. Tex. 2010) (finding no 
legally cognizable property interest in Federal shrimping permits); see 
also Melancon, 703 F.3d at 269 (describing these indicia as ``the right 
to possess, use, and dispose''); Hearts Bluff Game Ranch, 669 F.3d at 
1330 (identifying ``the ability to sell, assign, transfer, or exclude'' 
as the crucial indicia of a property right). Because the statutory 
language in the NFA makes it clear that applicants do not have the 
right to make or transfer an NFA firearm until a properly approved Form 
1 or 4 is issued, the applicant does not have a property interest in 
the NFA firearm until a properly approved Form 1 or 4 is issued. See 26 
U.S.C. 5812 and 5822. See Hollis, 2015 U.S. Dist. LEXIS 103656 (holding 
``that Plaintiff had no property interest in either the machine gun or 
the erroneous approval of the Form 1 application'').
    The Department therefore disagrees that delaying or preventing the 
transfer of an NFA firearm constitutes a ``seizure'' under the Fourth 
Amendment. As explained above, individuals, trusts, and legal entities 
do not have a property interest in an NFA firearm until a properly 
approved Form 1 or 4 is issued. They therefore lack standing to assert 
a Fourth Amendment claim because they cannot assert ``an interest in 
the property seized.'' Rakas v. Illinois, 439 U.S. 128, 148 (1978).
    As to the comment regarding the home inspection that one CLEO 
purportedly required of citizens before granting a CLEO certification, 
the Department notes that the final rule will not include a CLEO 
certification requirement so there will be no further need to consent 
to such home inspections. Instead, the final rule will contain a CLEO 
notification provision, which should ease commenters' concerns.
c. Violates the Fifth Amendment
i. Due Process Clause
Comments Received
    Several commenters expressed a concern that local CLEOs would 
refuse to certify applications for little or no reason, amounting to a 
violation of due process under the Fifth Amendment. Several commenters 
also stated that applicants primarily use ``gun trusts'' due to their 
CLEOs' arbitrary and capricious refusal to provide certification, and 
expressed concern that the proposal essentially removes this option.
    In addition, a few commenters noted that Federal appellate courts 
have recognized the validity of trusts established with a prohibited 
person as the settlor, which allows the prohibited person to maintain 
the prohibited person's ``ownership'' interest in the property while 
surrendering the prohibited person's right to the ``possessory'' 
interest to a trustee, see United States v. Zaleski, 686 F.3d 90, 93 
(1st Cir. 2012); United States v. Miller, 588 F.3d 418, 419-20 (7th 
Cir. 2009); Cooper v. City of Greenwood, 904 F.2d 302, 305-06 (5th Cir. 
1990). One of these commenters also stated that trusts provide a well-
established method to maintain regulatory compliance without exercising 
possession, and provided the common example of beneficiaries who are 
minors. This commenter predicted that the proposed rule, if finalized, 
would most certainly be challenged as a ``taking'' under the Fifth 
Amendment.
Department Response
    The Department believes that most of the commenters' concerns are 
addressed with the change from CLEO certification to CLEO notification. 
Moreover, this rule does not eliminate or significantly burden the use 
of trusts or legal entities by persons who may wish to employ them as 
part of the NFA firearm acquisition process.
    The Department disagrees with commenters asserting that the 
proposed regulations would lead to a violation of an applicant's due 
process rights under the Fifth Amendment. Recently, at least two courts 
considered whether a denied NFA applicant had a property interest in 
the denied Form 1 application or in the NFA weapons he sought to make. 
Both district courts ruled that the applicant had no property interest 
in the ATF Form 1 or firearm at issue. Hollis, 2015 U.S. Dist. LEXIS 
103656; and One Palmetto State Armory PA-15 Machinegun, 2015 U.S. Dist. 
LEXIS 95302.
    Procedural due process challenges must demonstrate that the `` 
`state has deprived a person of a liberty or property interest.' '' 
Wilson v. Birnberg, 667 F.3d 591, 601 (5th Cir. 2012) (quoting Welch v. 
Thompson, 20 F.3d 636, 639 (5th Cir. 1994)). If it has, then the Court 
``must determine whether the procedures relative to that deprivation 
were constitutionally sufficient.'' Id. As explained in the preceding 
section regarding whether this rule will effect a ``seizure'' in 
violation of the Fourth Amendment, individuals do not have a property 
interest in an NFA firearm until a properly approved Form 1 or 4 is 
issued.
    Moreover, most, if not all, NFA applicants who will be impacted by 
the proposed change in the definition of a ``person,'' which requires 
``responsible persons'' for a trust or legal entity to undergo a 
background check, will have no legally cognizable property interest in 
either the NFA firearm sought or the NFA application form. Several 
courts have held that a property interest is lacking where the alleged 
property is not accompanied by the ``crucial indicia of property 
rights,'' such as the right to assign, sell, or transfer the property 
at issue. Gonzalez v. NOAA, 695 F. Supp. 2d at 504 (finding no legally 
cognizable property interest in Federal shrimping permits). Further, 
the fact that it is unlawful to possess a firearm before ATF approves 
the relevant form reinforces the Department's conclusion that there is 
no property interest in such firearms until such forms are properly 
issued. See Hollis, 2015 U.S. Dist. LEXIS 103656.
    As for the comments expressing concerns about protecting the 
property interest of minors, the proposed regulation will allow trusts 
to possess the NFA weapon until the minor comes of age. Once the minor 
is of age, the minor can then complete the transfer application and 
background check and, if not otherwise prohibited from possessing an 
NFA firearm, take possession of the NFA weapon. The only change the 
rule makes is that it requires that responsible persons in trusts 
undergo background checks and not be prohibited persons. If anything, 
therefore, the rule will provide trust beneficiaries with an added 
measure of protection by ensuring that trust property is held in the 
hands of a law-abiding person who is not prohibited from possessing 
firearms under Federal or State law.
    Moreover, to the extent that courts have recognized a felon's 
ability to employ a trust or other device to maintain an ownership 
interest, so long as there is no ability to physically possess or 
control the firearm, those cases have no application here. Trust 
beneficiaries who cannot physically possess or control firearms held in 
trust for them will not typically be responsible persons under the 
rule. Additionally, this rule pertains to the acquisition of a firearm, 
not the disposition of a firearm already owned by someone who later 
becomes prohibited.
ii. Self-Incrimination
Comments Received
    The Fifth Amendment provides a right against self-incrimination, 
which

[[Page 2673]]

permits an individual to refuse to disclose information that could be 
used against such individual in a criminal prosecution. One commenter 
argued that a criminal who desired to obtain an NFA weapon would not go 
through the appropriate routes of submitting to ATF the required forms, 
paying the associated tax, and waiting for the forms to be approved. 
This commenter cited case law, Haynes v. United States, 390 U.S. 85 
(1968), as support for the proposition that felons and other prohibited 
individuals are not required to register NFA weapons due to the Fifth 
Amendment and self-incrimination.
Department Response
    This comment has no relevance to the rule. Haynes does not stand 
for the proposition that a felon is entitled to obtain an NFA weapon 
without undergoing a background check because to do so would violate 
the felon's rights under the Fifth Amendment. While individuals cannot 
be compelled to give incriminating information against themselves 
during the NFA application process, they do not have the right to opt 
out of the background check process. Nor do they have the right to 
provide false information during the process. Further, they do not have 
a right to an approval of their application or to possess the firearm 
without an approved application.
    Commenters should be aware that Haynes was based on an earlier 
version of the NFA where transferees were required to notify ATF of 
their possession of firearms regardless of whether possession was 
legal. The pre-1968 version of the NFA was ``repeatedly . . . attacked 
on self-incrimination grounds,'' United States v. Gullett, 322 F. Supp. 
272, 273 (D. Colo. 1971). ``In Haynes the Supreme Court ruled that a 
timely assertion of the privilege was a defense to a prosecution for 
violation of former section 5851, which forbade the possession of 
certain classes of firearms not registered with the Secretary of the 
Treasury or the Secretary's delegate. The court found that the crime 
created by section 5851 was not meaningfully distinguishable from the 
section 5841 crime of failure to register possession of certain 
firearms and that compliance with the registration provision would have 
compelled petitioner to provide evidence facilitating his prosecution 
for violation of either the making or transfer clauses of section 
5851.'' Id.
    In response to Haynes, Congress amended the NFA and enacted, among 
other provisions, 26 U.S.C. 5848, which provides that registration 
information may not be used, directly or indirectly, against a 
registrant in a criminal proceeding for an offense occurring prior to, 
or concurrent with, the registrant's registration. Because Congress 
specifically drafted the legislation to protect a registrant from 
criminal prosecution due to the registrant's act of registration, it 
follows that registration information cannot be used in a Federal or 
State prosecution for illegal acquisition of a registered firearm, a 
past crime involving the use of a registered firearm, or illegal 
possession of a registered firearm. 26 U.S.C. 5848(a). However, if the 
government obtains independent evidence of the offense, there is no 
immunity from prosecution. Also, section 5848 does not preclude the use 
of registration information in a false statements prosecution under 26 
U.S.C. 5848(b). The Supreme Court approved the current statute on Fifth 
Amendment grounds in United States v. Freed, 401 U.S. 601, 604-07 
(1971).
d. Violates the 14th Amendment
Comments Received
    The 14th Amendment provides that ``[n]o state shall . . . deprive 
any person of life, liberty, or property, without due process of law; 
nor deny to any person within its jurisdiction the equal protection of 
the laws.'' Many commenters stated that CLEOs categorically or 
arbitrarily refuse to sign any ATF forms, even though the NFA firearm 
is completely legal in their jurisdiction. Further, according to other 
commenters some CLEOs impose additional burdensome and arbitrary 
conditions not consistent with the law, or even common sense, to obtain 
their signature. A few commenters believed that, as written, the 
proposed rule allows CLEOs to exercise an ``administrative veto'' in a 
selective and arbitrary, and not uniform, manner across the United 
States, thereby violating the 14th Amendment's Equal Protection Clause, 
as well as the Due Process Clause.
Department Response
    As previously stated, the final rule will not require CLEO 
certification or approval, but will instead require CLEO notification. 
This change moots the concerns--whether valid or not--that a CLEO's 
refusal to grant an individual a certification would violate the 14th 
Amendment.
e. Federalism Concerns
Comments Received
    A few commenters argued that the proposed rule unnecessarily 
interferes with State law in several ways, including by: (1) 
Undermining State law by granting CLEOs de facto arbitrary power to 
establish policies directly contrary to State law; (2) intruding on 
State law governing corporations, trusts, and LLCs by defining 
``responsible persons'' of such entities; (3) undermining State laws 
limiting disclosure of information regarding ownership of firearms by 
mandating that an applicant share such information with a CLEO to 
obtain CLEO certification; and (4) imposing an unfunded mandate on 
CLEOs by expanding the CLEO certification requirement.
Department Response
    Given that the final rule will not require CLEO certification but 
rather only CLEO notification, the Department believes that any 
Federalism concerns raised by this rule are moot.
    Moreover, this rule defines ``responsible person'' for purposes of 
NFA registration, and for no other purpose. Nor does this rule purport 
to impose any dissemination obligations or restrictions upon CLEOs with 
respect to the notifications they receive. Accordingly, this rule does 
not infringe upon legitimate State prerogatives in those areas.
f. Exceeding Statutory Purpose Concerns
Comments Received
    A few commenters asserted that the original purpose of the NFA was 
to use the tax code solely to provide a basis for prosecuting 
``gangsters'' who possessed untaxed, unregistered firearms, and not to 
prohibit NFA firearms, or eliminate the ability to transfer them to 
law-abiding citizens who paid the tax and followed the registration 
procedures. One of these commenters further asserted that by passing 
the Firearm Owners' Protection Act (FOPA), Public Law 99-308, 110 Stat. 
449 (1986), Congress made clear that ``ATF's regulations and 
enforcement activities of legal owners of firearms--like those who seek 
to register firearms under the NFA--had already gone too far.'' 
Specifically, this commenter quoted section 1(b) of FOPA, as 
prohibiting the Department from placing ``undue or unnecessary Federal 
restrictions or burdens on law-abiding citizens with respect to the 
acquisition, possession, or use of firearms'' when implementing the 
GCA. These commenters asserted that the proposed rule exceeds the 
statutory purpose as it is not a provision to ensure the payment of NFA 
tax, and it imposes additional undue and unnecessary burdens on law-
abiding citizens.

[[Page 2674]]

    Another commenter, citing the Supreme Court's decision in Mistretta 
v. United States, 488 U.S. 361 (1989), asserted that the proposed rule 
represented an ``aggrandizement of executive power'' and a violation of 
the separation of powers doctrine because it would function as an 
amendment to existing legislation.
    Another commenter stated that ATF lacked statutory authority to 
promulgate a regulation creating a new class of persons (i.e., 
responsible persons)--and to require that a transferee provide 
additional information (i.e., for the purposes of background checks) to 
be submitted by principal, agents, or employees of the transferee. This 
commenter maintained that Congress is familiar with the term 
``responsible person'' and cited two statutory sections where the term 
was used (i.e., 18 U.S.C. 841, where ``responsible person'' means ``an 
individual who has the power to direct the management and policies of 
the applicant pertaining to explosive materials,'' and 21 U.S.C. 379aa, 
which refers to the ``responsible person'' as ``the manufacturer, 
packer, or distributor whose name . . . appears on the label of a 
nonprescription drug marketed in the United States.''). This commenter 
maintained that Congress has debated, on numerous occasions, background 
checks for firearms and has chosen, ``through its act of omission,'' 
not to create a responsible person definition for the NFA or firearms. 
This commenter argued that the proposed rule was an ``end run'' around 
Congress.
Department Response
    The Department does not agree with comments that this rulemaking 
exceeds its authority to issue regulations for administration of the 
NFA. Congress granted the Attorney General \4\ express authority to 
establish, by regulation, the procedures to be used for the transfer of 
NFA weapons, including the manner in which transferees and transferors 
are identified on NFA application forms. See 26 U.S.C. 5812(a). The 
Attorney General has, in turn, delegated that authority to ATF. See 28 
CFR 0.130(a) (delegation of authority to ATF to administer laws related 
to firearms under 18 U.S.C. chapters 44 and 53). This rulemaking is 
being undertaken by ATF under its authority delegated by Congress and 
the Attorney General. See 18 U.S.C. 926(a); 26 U.S.C. 7801(a)(2)(A)(i), 
7805(a); 28 CFR 0.130(a).
---------------------------------------------------------------------------

    \4\ Congress originally delegated the authority to promulgate 
NFA regulations to the Secretary of the Treasury; Congress re-
delegated that authority to the Attorney General. See 26 U.S.C. 
7801(a)(2); 28 U.S.C. 599A(c)(1).
---------------------------------------------------------------------------

    To the extent commenters assert that the proposed rule is 
inconsistent with the purpose underlying the NFA, the Department 
respectfully disagrees. The history of the NFA makes clear that 
Congress intended to use its tax authority to ensure the transfer of 
certain firearms was subject to a transfer tax and registration 
requirement to help prevent violent criminals from obtaining those 
firearms.
    During the Great Depression, the Nation faced the difficulty of 
controlling violence by gangsters. Representative Robert L. Doughton 
noted that ``for some time this country has been at the mercy of the 
gangsters, racketeers, and professional criminals.'' 78 Cong. Rec. 
11,400 (1934). The Attorney General, Homer Cummings, warned Congress 
that ``there are more people in the underworld today armed with deadly 
weapons, in fact, twice as many, as there are in the Army and the Navy 
of the United States combined.'' Nat'l Firearms Act Hearings on H.R. 
9066 Committee on Ways and Means, 73d Cong. 4 (1934). In reviewing the 
legislative history, modern courts have noted, for example, that ``the 
emergence of organized crime as a major national problem led to the 
enactment of the National Firearms Act of 1934.'' Lomont, 285 F.3d at 
11. In 1934, Congress passed the NFA requiring everyone, including 
criminals, to register NFA firearms or face prosecution for failing to 
do so. In this way, Congress intended to keep criminals from obtaining 
NFA firearms or, if they obtained these firearms, to provide a powerful 
tool with which to prosecute them. When questioned about the impact of 
the tax and registration requirements on law-abiding citizens, the 
Attorney General testified that the requirement is ``not an irrational 
request to make of the honest citizen who wants the criminal class 
stamped out.'' Nat'l Firearms Act Hearings on H.R. 9066 Committee on 
Ways and Means, 73d Cong. 25 (1934).
    The proposed rule's definition of ``responsible person,'' and its 
requirement that such persons undergo a background check prior to 
making or receiving an NFA firearm, are fully consistent with this 
legislative history and with the intended purpose of the NFA. The 
proposed rule serves Congress's intent in passing the NFA because it 
further denies criminals the ability to obtain NFA firearms. The 
proposed rule does not meaningfully limit the availability of firearms 
to the law-abiding public.
    A similar response applies to the comments asserting that the 
proposed rule's requirement that responsible persons undergo a 
background check is inconsistent with Congressional intent underlying 
FOPA. The Department is certainly aware that, in passing FOPA, Congress 
expressed that it was not its intent to place undue or unnecessary 
restrictions or burdens on law abiding citizens with respect to the 
lawful private possession of firearms for lawful purposes. FOPA, Public 
Law 99-308, 100 Stat 449 (1986). However, this expression of intent was 
set out in a section of FOPA amending the GCA, not the NFA. In the 
context of the dangerous class of weapons regulated by the NFA, the 
Department's assessment is that the background check requirement is 
within its statutory authority, and the regulatory burden is 
proportionate and appropriate.
    In any event, the rule in no way places undue or unnecessary 
Federal restrictions or burdens on law abiding citizens, but rather 
imposes regulations reasonably designed to fulfill the purposes of the 
NFA. The proposed rule is crafted to ensure consistent application of 
the law and effectuate Congress's preference that criminal background 
checks be conducted on unlicensed persons to whom firearms are 
transferred, including those who exert control over NFA firearms on 
behalf of trusts and legal entities. By defining many individuals 
affiliated with trust and legal entities who exert control over NFA 
firearms as ``responsible persons'' and requiring them to undergo 
background checks, the proposed rule helps achieve the Congressional 
objective of preventing the transfer of firearms to those who are 
prohibited or otherwise ineligible to possess or receive them.
g. Miscellaneous
    One commenter challenged the adequacy of the industry impact 
disclosures in the proposed rule, asserting they were inaccurate and 
incomplete. Another commenter generally asserted that the proposed rule 
violated the constitutional rights of corporations.
Department Response
    The Department has undertaken its best efforts to accurately 
calculate the rule's benefits and costs. The Department believes the 
financial impact information contained in the NPRM refutes the 
commenter's challenge to the adequacy of the financial impact 
disclosures. The Department fully and accurately assessed the financial 
impact of the cost

[[Page 2675]]

of this rulemaking on all interested parties, including various 
segments of the firearms industry; businesses that depend on the 
firearms industry; firearm purchasers; State and local police; trust 
attorneys, and its own resource costs in administering the proposed 
rule. The information set forth in the NPRM with respect to financial 
impact meets or exceeds the thresholds required for the proposed rule 
to become a final rule.
    The NPRM included the required statutory and executive order 
review, which fully addressed the financial impact of the proposed 
rule. These reviews concluded that the annual effect of the proposed 
rule on the economy will not exceed $100 million and that the proposed 
rule would not adversely affect in a material way the economy, a sector 
of the economy, productivity, competition, jobs, the environment, 
public health or safety, or State, local, or tribal governments or 
communities. Accordingly, the proposed rule did not reach the threshold 
of an economically significant rulemaking under Executive Order 12866.
    Moreover, because the statutory and executive order reviews in the 
NPRM included the costs of CLEO certification in their assessments, the 
cost estimates included in each of those reviews significantly 
overstate the cost that will be associated with the final rule. As 
noted, the final rule has eliminated the CLEO certification requirement 
and replaced that requirement with a less burdensome notice 
requirement. Thousands of commenters agreed that CLEO certification was 
the most expensive and cumbersome aspect of the proposed rule, and 
asserted that the elimination of the CLEO certification provision would 
result in substantial cost savings to the public and law enforcement. 
Examples of savings suggested in the comments included: (1) would-be 
applicants intended to create trust entities solely for the purpose of 
avoiding the CLEO certification process will now save the cost of that 
trust creation; (2) applicants who opt not to create a trust or cannot 
afford a trust will no longer have to expend time and resources 
obtaining CLEO certification; and (3) State and local law enforcement 
will not be required to expend the time and resources needed to 
complete certifications.
    The Department does not agree that requiring responsible persons of 
trusts and legal entities to provide identification information and 
submit to a background check violates the constitutional rights of 
those entities. Background checks are lawful as applied to individuals, 
and the Department believes they are similarly lawful when applied to 
the responsible persons behind corporate entities. In fact, responsible 
persons of FFLs are subject to a background check, as are responsible 
persons of corporate entities that wish to obtain explosives permits or 
licenses. There is no reason to believe that because NFA weapons are 
involved, that same approach violates the Constitution in this context.
4. Consequences of Implementing Rule
Comments Received
    Many commenters stated that the CLEO certification requirement 
makes the proposed rule ``unworkable'' and demonstrates the need to 
eliminate this requirement for individuals as well. A few other 
commenters foresaw the proposed rule exposing ATF to potential lawsuits 
filed by law-abiding citizens who could not obtain NFA weapons because 
some CLEOs refuse to certify NFA applications, and protested that the 
proposed rule would eliminate the option of obtaining NFA items without 
a CLEO certification through a trust. See section IV.C.4.c, on general 
applicability, for additional information. Others added that that the 
certification requirement was an unworkable burden on both NFA 
applicants and State law enforcement agencies and that nothing in the 
proposed rule suggests that ATF has any intention to expand the size or 
funding of the NFA Branch to handle the increased workload as the 
number of individuals and Forms to check would drastically expand.
    Several commenters stated generally that the proposed rule would 
cause ``unintended consequences'' and have ``negative repercussions.'' 
Many commenters stated that the proposed rule has the potential to 
dramatically increase the processing times and further burden what they 
regard as ATF's already overwhelmed NFA Branch, which they assert 
presently takes 8 to 10 months--with some commenters stating even 
longer times, (e.g., 6-15 months)--to process an application. One 
commenter stated that the NFA Branch would come to rely more on CLEO 
signoffs and would fail to thoroughly vet transferees as it would 
struggle to maintain an acceptable rate of transfer approvals. The 
commenter asserted that the CLEO process in its current form is marred 
by corruption (e.g., bribery; cronyism) in many jurisdictions, and 
feared that a prohibited person could exploit the corruption created by 
the expanded CLEO requirement to obtain and misuse a NFA firearm, as 
the ATF would be forced to rely upon the CLEO certification to keep 
pace with review of the number of forms submitted. A few commenters 
stated that the proposed rule would impact trustees' abilities to 
manage trusts with the proposed requirement for new responsible persons 
to submit a Form 5320.23 as well as obtain a CLEO sign-off within 30 
days of the new responsible person's appointment. Another commenter 
alluded to potential State actions whereby States may enact legislation 
and put in place systems to obtain and sell or transfer machineguns to 
their citizens--nullifying ATF's authority--since individual gun rights 
have been afforded greater respect in a number of States after Heller, 
554 U.S. 570. The commenter stated that, under 18 U.S.C. 922(o), a 
State has a clear congressionally-granted power to transfer machineguns 
to any individual if authorized by State law. Still other commenters 
stated that the proposed rule would have negative economic effects, 
including damage to the suppressor \5\ industry and related small 
businesses, increased costs to local law enforcement agencies, and 
potential loss in tax revenue and funding to ATF. See section 
IV.E.1.g.i for full discussion of lost tax revenue.
---------------------------------------------------------------------------

    \5\ ``Suppressor'' is a term commonly used by the firearms 
industry and the general public to refer to firearms that are 
defined in the NFA as ``silencers.'' The Department generally uses 
the word ``silencer'' in this preamble because that is the statutory 
term. See 26 U.S.C. 5845(a)(7) (defining silencer for purposes of 
the NFA by cross-reference to 18 U.S.C. 921(a)(24)).
---------------------------------------------------------------------------

    Several commenters expressed concern that the proposed rule would 
impact an applicant's ability to file applications electronically.
Department Response
    As previously stated, in response to the concerns expressed by 
commenters, the final rule will no longer include a CLEO certification 
provision; instead, the final rule will include a CLEO notification 
provision that will require applicants simply to notify the CLEO in 
writing of the application in accordance with the language of the final 
regulation. Thus, the many concerns expressed by commenters regarding 
the CLEO certification are moot. The Department also believes that with 
the shift to CLEO notification, there will be cost and time-saving 
benefits for all applicants.
    Likewise, concerns about the Department's reliance on CLEO 
certification to complete background checks on NFA applicants are moot. 
The Department will continue to conduct background checks in accordance 
with established procedures.

[[Page 2676]]

    The Department believes it has considered all reasonably 
foreseeable consequences and possible repercussions arising from the 
rule. As with most meaningful changes to regulations or laws, the new 
rule may cause some operational or procedural changes, and may alter 
the workload and costs for industry members and Government workers. The 
Department acknowledges that this final rule may increase the time 
required to process applications received from trusts and legal 
entities, as well as for individuals, as an increased number of 
applications undergo more complete checks. The Department estimates 
that this final rule initially will increase processing times of these 
applications from the current four months processing time to six to 
eight months for processing. The Department anticipates that this time 
will be reduced once the NFA Branch adjusts to the new process. In 
addition, ATF will work to increase its resources and staffing to 
process the applications. Of course, continued increases in the number 
of applications submitted may correspondingly continue to place 
pressure on processing times. The Department has done its best to 
consider all possible consequences arising out of the final rule and 
has considered, among other things, the increased operational cost for 
the Government and industry members; the increased cost associated with 
additional fingerprint cards and photographs for responsible persons; 
and the increased labor cost associated with the time it takes for 
applicants and industry members to complete the required forms. Having 
considered all of the reasonably foreseeable costs and benefits, the 
Department has determined that the benefits of ensuring NFA weapons are 
less easily obtained by persons prohibited from possessing them 
outweigh the cost of implementing the rule.
    In response to commenters who believe that this rulemaking may 
``goad'' States into passing firearm laws that attempt to ``nullify 
ATF's authority'' in this area, the Department has two responses. 
First, the Department does not believe that State efforts to interfere 
with the rule's effectiveness lessen the need for it. The Department 
believes that the rule will help to fulfill the purposes of the NFA and 
help to ensure public safety even if State efforts might make it 
somewhat less effective than it would otherwise be.
    Second, the Department believes that, to be valid, State firearms 
laws must be consistent with Federal law. The Supremacy Clause of the 
United States Constitution provides that the laws of the United States 
``shall be the supreme Law of the Land; . . . any Thing in the 
Constitution or Laws of any state to the Contrary notwithstanding.'' 
U.S. Const. art. VI, cl. 2. Since McCulloch v. Maryland, 17 U.S. (4 
Wheat.) 316, 427 (1819), it has been settled that State law that 
conflicts with Federal law is ``without effect.'' Maryland v. 
Louisiana, 451 U.S. 725, 746 (1981). When determining if such a 
conflict exists, the ``purpose of Congress'' is the ultimate 
touchstone. Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516 (1992). 
The purpose of the NFA is to enhance public safety and ensure that 
prohibited persons do not obtain firearms. State laws that conflict 
with the NFA's purpose may therefore be preempted.
5. General Alternatives to Rule
    Many commenters stated the proposed rule failed to consider more 
cost effective and practical alternatives that would enhance public 
safety and enable ATF to better meet administrative obligations under 
the NFA, and suggested other mechanisms that ATF should consider. The 
majority of commenters suggested that ATF eliminate the CLEO 
certification requirement for all NFA transactions, for reasons 
discussed in section IV.C.1. Many commenters also proposed general 
alternatives. These proposed alternatives included eliminating the NFA 
altogether; removing some categories of items subject to NFA regulation 
(such as silencers); varying the regulatory requirements depending on 
the nature of the NFA item; amending NFA transaction forms to more 
strongly emphasize criminal liability for possession by a prohibited 
person; developing and improving enforcement efforts; and improving the 
administrative process.
a. Eliminate the NFA Altogether
Comments Received
    Several commenters suggested that the NFA transfer procedures be 
repealed. Some of these commenters suggested replacing NFA transfer 
procedures with the issuance of ``NFA cards,'' that would allow the 
card-holder to purchase any NFA weapon. One of these commenters 
recommended that card applicants be required to undergo background 
checks and submit fingerprints and photographs.
    Several commenters, including FFLs, who urged repeal of the NFA, 
suggested that transfer of NFA firearms should be handled in the same 
manner as GCA transfers, with either the $200 tax and registration 
requirements being abolished or having the tax collected at the point 
of sale by the FFL. One of these commenters asserted that a simple and 
effective background check by the FBI's National Crime Information 
Center would serve the same function as the current NFA procedure at 
greatly reduced cost. Another commenter characterized NFA regulations 
as ``archaic'' and argued that they should be repealed and changed in 
light of ``advances in technology and linked NICS databases.'' Another 
commenter urged that ATF abolish the requirements for fingerprints, 
photographs, and CLEO certification for all NFA transfers and add a 
requirement that the NFA Branch process and return all new applications 
in no more than 10 business days from date of receipt.
Department Response
    The Department does not have the authority to repeal the NFA or any 
of its provisions; the NFA is a statute that only Congress may repeal 
or alter. Only Congress can remove a weapon from the purview of the 
NFA, or alter, increase or decrease, the making or transfer tax on a 
NFA weapon. ATF does not have the authority to change any of the 
requirements mandated in the statute. The NFA provides very limited 
authority to permit exemptions from the transfer tax, and commenters' 
requested exemptions do not fall within that authority.
    Specifically, the NFA provision governing the making of an NFA 
firearm, 26 U.S.C. 5822, requires that a person who seeks to make an 
NFA firearm (a) apply to make and register ``the firearm,'' (b) pay 
applicable taxes on such firearm, (c) identify the firearm to be made, 
(d) identify himself, and if an individual, ``include his fingerprints 
and his photograph'' and (e) obtain ``approval of the Secretary to make 
and register the firearm.'' 26 U.S.C. 5822. The statutory provision 
governing the transfer of NFA weapons, 26 U.S.C. 5812(a), is 
substantively similar to section 5822, requiring (a) an application for 
the specific firearm, (b) the payment of relevant taxes, (c) 
identification of the firearm, (d) identification of the applicant 
(with fingerprints and a photograph required for individuals), and (e) 
approval of the transfer of the firearm. The Department therefore 
cannot abolish the fingerprint and photograph identification 
requirements, nor issue blanket permits to individuals to make or 
transfer NFA firearms.
    To the extent commenters would like the Department to change how it 
conducts its background checks, or not require fingerprints and 
photographs for applicants that are not individuals, the

[[Page 2677]]

Department believes that its current procedures for background checks 
are the best means of ensuring that prohibited individuals do not 
obtain NFA firearms, and that it would be administratively burdensome 
and encourage circumvention to create different application 
requirements for individuals, on the one hand, and trusts and legal 
entities on the other.
b. Remove Certain Categories of Items Subject to NFA Regulation or 
Subject Them to Minimal Regulation Within the NFA Framework
    Many commenters suggested that certain categories of NFA-regulated 
items should be removed. A few commenters stated that silencers, short-
barreled rifles, short-barreled shotguns, and weapons falling within 
the NFA's ``any other weapon'' (AOW) definition should be regulated in 
the same manner as non-NFA firearms--requiring only a NICS background 
check when transferred from an FFL. Another commenter suggested that 
there be a more nuanced approach to regulating NFA items--not a one-
size-fits-all approach--and that some could have fewer regulatory 
requirements than others. The suggestions for treatment of the 
particular categories are separately addressed.
i. SBRs, SBSs, and AOWs
Comments Received
    Many commenters argued that SBRs and SBSs are functionally no 
different than handguns. The same commenters noted that a criminal 
could easily make an SBR or SBS by cutting down a long gun, and stated 
that SBRs and SBSs should be treated the same as handguns. Several 
commenters argued that SBRs and SBSs are less accurate than handguns. 
These commenters asked how SBRs and SBSs are more deadly or more 
dangerous than AR-15-style pistols and other handguns that are more 
readily concealable.
    A few commenters stated that ATF should deregulate SBRs and SBSs 
and remove them from the NFA. These commenters suggested that ATF allow 
FFLs to sell SBRs and SBSs in over-the-counter transactions, in the 
same manner as GCA long guns (rifles and shotguns). A few commenters 
stated that there is no reason to regulate SBRs and SBSs when these 
items are not normally used in crimes. A few other commenters stated 
that continuing to regulate these items will have no impact on crime.
    Many commenters also believed that AOWs do not warrant NFA 
classification, and should also be handled under GCA transfer 
standards. These commenters noted that AOWs generally pique the 
interest of collectors--not criminals--and are therefore owned by law-
abiding citizens for lawful purposes. Another commenter suggested that 
ATF increase taxes on machineguns, and remove SBRs and SBSs from NFA 
regulations. Another commenter suggested that ATF direct its 
investigative energies toward AOW and machinegun applications, and 
apply lesser treatment for SBRs and silencers (i.e., NICS check only). 
Other comments pertaining to silencers are addressed in section 
IV.B.5.b.ii, below.
Department Response
    As noted, only Congress can bring a weapon under the purview of the 
NFA, and only Congress can repeal or remove a weapon from the purview 
of the NFA. All of the weapons referenced in these comments (SBSs, 
SBRs, silencers, AOWs, and machineguns) have been designated NFA 
weapons since the statute was enacted in 1934. With the exception of 
the reduced transfer tax on AOWs, no statutory provision in the NFA 
specifically provides for differing treatment of NFA firearms. While 
ATF has the authority to remove some firearms from the purview of the 
NFA due to certain factors that make them primarily a collector's item 
and not likely to be used as a weapon, ATF does not have the authority 
to change the definition of ``firearm'' under 26 U.S.C. 5845(a). To the 
extent that commenters would like the agency to take a more flexible 
approach to regulating NFA firearms, for example, by reducing or 
eliminating background checks, the Department takes the position that 
uniform measures best fulfill the NFA's statutory purposes and benefit 
public safety.
ii. Silencers
Comments Received
    The Department received a number of comments concerning silencers 
(commonly known as ``suppressors,'' see supra note 5). Many commenters 
pointed out that silencers do not measurably contribute to gun violence 
and are important and popular safety devices within the hunting and 
shooting sports communities to protect from hearing loss and reduce 
noise pollution, and may also be used for home protection. A few 
commenters stated that multiple studies have clearly shown that 
earmuffs, even when used together with earplugs, do not adequately 
protect against hearing loss when firing most calibers of weapons. A 
few commenters pointed out that silencers do not make a gun silent, and 
provided information showing the silencers' goal is simply to reduce 
the sound to a certain decibel level to avoid hearing damage. One 
commenter provided in-depth research and data on noise-reducing 
benefits and superiority of silencers to ear-level devices. This 
commenter asserted that the proposed rule represents a step backward in 
protecting against hearing loss. Many commenters stated that several 
other countries with much stricter gun regulation than the United 
States (e.g., United Kingdom, Finland) sell silencers without 
restriction and directly ``off the shelf.'' Another commenter stated 
that many countries encourage the use of silencers to keep noise down 
and improve hearing safety. Many commenters observed that silencers are 
legal in several States (e.g., North Carolina, Washington, Texas). Many 
commenters advocated that silencers should only require a NICS check. 
Another commenter suggested that if ATF retains the CLEO certification 
requirement, silencers be exempted from such a requirement. Another 
commenter suggested that ATF reduce the tax stamp cost for silencers to 
$5.00 or to remove silencers from the NFA altogether. Another commenter 
stated that silencers should not need a tax stamp in States that permit 
silencers.
Department Response
    The NFA defines silencers as firearms. 26 U.S.C. 5845(a)(7). The 
NFA defines the word ``silencer'' by reference to section 921 of title 
18, see id., which defines the terms ``firearm silencer'' and ``firearm 
muffler'' to mean ``any device for silencing, muffling, or diminishing 
the report of a portable firearm, including any combination of parts, 
designed or redesigned, and intended for use in assembling or 
fabricating a firearm silencer or firearm muffler, and any part 
intended only for use in such assembly or fabrication.'' 18 U.S.C. 
921(a)(24). Thus it is the NFA statute, and not the Department, that 
defines silencers (or ``suppressors'') as firearms for purposes of the 
NFA. And because silencers are ``firearms'' for purposes of the NFA, 
they are subject to the restrictions on making and transferring 
firearms in the NFA. See 26 U.S.C. 5812(a), 5822.
    As noted, only Congress can remove a class of weapons from the 
purview of the NFA. ATF does not have the authority to remove silencers 
from the NFA and does not believe it would be prudent to make different 
types of firearms subject to different background check requirements. 
The NFA provides very limited authority to permit exemptions from the 
transfer tax, and

[[Page 2678]]

commenters' requested exemptions do not fall within that authority. ATF 
also lacks the authority to reduce tax stamp costs associated with NFA 
firearms, as those costs are fixed by statute. Finally, given that the 
Department is not requiring CLEO certification for any items covered by 
the NFA, the comments relating to removing the CLEO certification 
requirement for silencers are moot.
c. Ways for ATF To Stress Criminal Liability for Possession by a 
Prohibited Person
Comments Received
    A commenter suggested that ATF amend all forms associated with NFA 
transactions to add warnings indicating that any individual or any 
member of a legal entity that permits a prohibited person access to any 
NFA item has committed a criminal act. The added language should also 
state that for a legal entity, the criminal responsibility for 
permitting such access rests with the legal entity and all of its 
individual members. The commenter further asserted that legal entities 
are not widely used by prohibited persons to acquire or possess NFA 
items because the NFA forms submitted to ATF identify all members of 
the legal entity involved in the transfer, and a prohibited person 
would likely fear being identified from the form and prosecuted. The 
commenter asserted that no evidence exists that ATF actually uses these 
names to identify, investigate, and prosecute criminal acts, and he 
suggested that ATF should do more to develop efforts to identify, 
investigate, and prosecute possession of NFA items by prohibited 
persons. If ATF were to institute such efforts, ATF could establish an 
information baseline to show the extent of any illegal practices, which 
could support any necessary regulatory or legislative changes.
Department Response
    The Department believes that current NFA transfer forms (ATF Forms 
1, 4, and 5) adequately convey information about the penalties for 
unlawful possession of an NFA weapon. With respect to the assertion 
that legal entities are not widely used by prohibited persons to 
circumvent background checks, the absence of background checks for 
transfers involving trusts or legal entities renders it extremely 
difficult to assess how often prohibited persons have obtained NFA 
firearms through such transfers. Finally, ATF enforces the criminal 
laws within its jurisdiction, and if it becomes aware of any firearm--
including NFA firearms--in the possession of persons prohibited from 
having it, it will take appropriate actions.
d. Miscellaneous General Comments
Comments Received
    A few commenters requested that ATF reopen the NFRTR to permit the 
legal ownership of machineguns manufactured after 1986 (post-1986 
machineguns). A few other commenters suggested revising the 
requirements by simply eliminating the ``cut off'' date in the NFA to 
allow for newly manufactured NFA weapons (e.g., machineguns, automatic 
rifles) as the current stock is very limited, and to replace worn and 
unsafe weapons with new guns when ``old weapons become nothing more 
than high-priced collector items.'' A commenter stated that this change 
would reduce the purchase price due to increased market availability 
and would increase tax revenue. This same commenter supported a higher 
cost tax stamp for the post-1986 machineguns, and for these guns to 
continue to be heavily regulated. Another commenter stated that having 
new firearms available would greatly increase the income of both 
government and private firearms manufacturers, which benefits local 
governments through sales tax.
    A commenter stated that ATF needs to rewrite the proposed rule to 
comply with the Plain Language Act of 2010. Another commenter suggested 
that, prior to drafting regulations, ATF should start a dialogue to 
enable ``sound and rational'' regulations to promote safety without the 
``animosity and conflict'' that has divided the country on so many 
issues. Another commenter expressed his willingness to work with ATF to 
conduct geographic information system research to help devise a common 
sense approach to crime reduction. One commenter suggested that ATF 
delay the final rule's effective date to allow ATF to process its 
backlog of NFA applications.
    A few commenters asked general questions and for additional 
information about other terms used in the proposed rule. For example, a 
commenter requested that ATF define the term ``make'' and asked if the 
proposed rule applied to all firearms or only to fully automatic 
weapons. Another commenter stated that the term ``certain other 
firearms'' was so vague that most semi-auto cartridge firing mechanisms 
would be considered illegal. Another commenter asked about a 
``destructive device.'' This commenter asked what ``constitutes'' a 
destructive device, and for guidance to ensure that this term is not 
open-ended.
Department Response
    ATF does not have the authority to remove the general prohibition 
on the transfer and possession of machineguns that were not lawfully 
possessed on May 19, 1986. This is a statutory prohibition and 
therefore only Congress has the authority to remove this prohibition. 
18 U.S.C. 922(o). Further, the statute requires that any machinegun be 
lawfully possessed by May 19, 1986. ATF does not have the authority to 
permit nongovernmental entities the ability to possess machineguns or 
other NFA firearms that are not lawfully registered in the NFRTR.
    With respect to commenters who believe that the Department should 
engage in additional dialogue or gather more data before issuing this 
rule, the Department disagrees. The Department has complied with the 
notice and comment procedures in the Administrative Procedure Act, 
other requirements imposed by statute, and relevant procedures required 
by the President for the promulgation of rules. The Department invited 
public comment to improve and refine the proposed rule and it has used 
public comments to do so. But the Department is not persuaded that 
further delay in promulgating the rule is likely to improve it or is 
otherwise in the public interest.
    The Department does not agree with the comment asserting that the 
final rule's effective date should be delayed until the backlog of NFA 
applications has been cleared. ATF's capacity to process NFA 
applications during a given timeframe is limited by resource 
constraints; absent a dramatic reduction in the number of applications 
ATF receives, it will likely continue to have some number of 
applications that await processing (i.e., a ``backlog''). That said, 
ATF has substantially reduced the backlog of pending applications over 
the course of the past year.
    The terms in the proposed rule about which the commenters sought 
clarification, such as ``make'' and ``destructive device,'' are defined 
by the NFA and in its supporting regulations. The definitions may be 
found in 26 U.S.C. 5845 and 27 CFR 479.11.

[[Page 2679]]

C. Comments Addressing Specific Portions of the Rule

1. CLEO Certification
a. CLEO Certification Is Unnecessary and Unreasonable
Comments Received
    Several commenters stated that ATF's access to NICS and other 
databases provides a more accurate background check than a CLEO 
certification. These commenters stated the CLEO signoff is 
``worthless,'' as the CLEO's signing or refusing to sign is in most 
cases based on the CLEO's personal political preferences; the CLEO 
signature has potential for abuse with the signature given for 
political support or other compensation; and that even on the limited 
occasions CLEOs perform background checks, they use NICS or the State 
equivalent for this type of check. Many commenters, noting that the 
CLEO certification requirement predated NICS, asserted that the CLEO 
certification no longer serves its original purpose. One commenter 
described the certification as ``antiquated and a gross waste of 
resources.'' Another described it as ``outdated, redundant, and 
superfluous,'' and urged ATF to eliminate it under the guidance 
provided in Executive Order 13610 of May 10, 2012, ``Identifying and 
Reducing Regulatory Burdens.''
    Several other commenters noted that ATF acknowledged in the 
proposed rule that even without CLEO certification, ATF already has a 
``fuller picture of any individual than was possible in 1934.'' Many 
commenters also generally noted that technological and societal changes 
have made it less likely that a CLEO is the best source for information 
indicating an individual may be prohibited from firearm possession. One 
commenter observed that many applicants never previously interacted 
with their local CLEOs, and, consequently, CLEOs do not serve the 
function they once did to assess the character or potential of an 
individual to misuse an NFA item. Many commenters agreed with this 
assessment as they personally never had any interactions with their 
local CLEOs.
    Many commenters asserted that the sign-off creates an 
insurmountable challenge and an unreasonable burden on applicants and 
CLEOs. Hundreds of commenters agreed that the consequence of retaining 
CLEO certifications for individuals and extending this requirement to 
responsible persons associated with legal entities would result in a de 
facto ban of NFA firearms, because they report that some CLEOs will not 
provide the necessary certification.
    Several commenters raised privacy concerns with the CLEO 
certification requirement, and asserted it should be completely 
eliminated in the interest of protecting personal tax information. 
These commenters considered the $5 or $200 tax paid to manufacture or 
transfer a NFA firearm or device to be ``protected'' or 
``confidential'' tax information, and stated that the mere application 
before paying the tax should not be reported to or involve any local 
CLEO or other government official. Another commenter questioned why his 
private tax information must be subject to law enforcement inspection 
and approval. This commenter worried that his personal, nonpublic 
information might become public record if the local law enforcement 
agency received a Freedom of Information Act request. The commenter 
stated that ATF has a ``well structured system for protecting [his] 
applications;'' however, he did not know of any Federal or State 
guidelines applicable to local law enforcement protecting his personal 
tax information. A few other commenters also raised concerns with some 
CLEOs retaining copies of the forms they sign. These commenters stated 
that they cannot object to such retention or they would never receive 
signoff from the CLEOs. A few commenters believed that sharing Federal 
tax information involuntarily with local agencies was against the law. 
Another commenter expressed concern that his personal privacy was also 
invaded by permitting local government officials to know what firearms 
are in his home.
    In addition, several commenters asked general questions about why 
CLEO certification was needed at all or why CLEO certifications are not 
required on all firearm transfers. Another commenter noted that there 
is no CLEO certification requirement for SOT-licensed manufacturers of 
NFA items to obtain their licenses, and such manufacturers merely need 
to send an ``intent letter'' informing local police agencies of their 
intent to manufacture NFA items in their local areas. This commenter 
asked how ATF determines SOT manufacturers are ``trusted'' persons with 
no CLEO certification. Further, this commenter opined that 
manufacturers of NFA items ``pose greater risk'' and should have 
``considerably more scrutiny'' than an individual or legal entity 
desiring to possess a few items.
Department Response
    The Department acknowledges that some trusts and legal entities 
would be unable to obtain a CLEO certification, for reasons other than 
a responsible person being prohibited or local ordinances prohibiting 
such firearms, which would result in those trusts and legal entities 
being unable to obtain an NFA firearm. As the proposed rule was not 
intended to deny those trusts and legal entities the opportunity to 
acquire such firearms where permitted by law, the Department has 
changed the CLEO certification to a CLEO notification. Additionally, 
the Department believes that with the shift to CLEO notification, there 
will be cost and time-saving benefits for all applicants, including 
those who find the current CLEO certification process daunting.
    The Department disagrees with the concern that providing the 
application to make or transfer NFA items to local law enforcement as 
part of CLEO notification is an unlawful release of tax information. 
Since the application has not been received by ATF at the time of CLEO 
notification, it does not constitute ``return information.'' See 
Lomont, 285 F.3d at 15. Additionally, while it is unlawful for 
employees of the Federal Government to release an individual's tax 
information, see 26 U.S.C. 6103(a), in this instance it is the 
individual that shares the information. Therefore, even if such 
information were ``return information,'' no employee of the Federal 
Government would be disclosing it. Lomont, 285 F.3d at 15.
    The Department does not agree with commenters that ATF does not 
have the authority to formulate regulations enforcing the provisions of 
the NFA. Congress expressly delegated authority to the Attorney General 
in section 5812 and 5822, among other sections. Congress provided the 
Attorney General with the authority to require certain identification 
procedures for transferors and transferees. See 26 U.S.C. 5812(a) 
(providing, inter alia, that ``[a] firearm shall not be transferred 
unless . . . the transferee is identified in the application form in 
such manner as the Secretary may by regulations prescribe, except that, 
if such person is an individual, the identification must include his 
fingerprints and his photograph . . . .'' (emphasis added)); 26 U.S.C. 
5822 (same with respect to making firearms). These sections require 
fingerprints and photographs for individuals at a minimum, but the 
information that the Attorney General can seek is not limited to these 
things. Finally, the Attorney General has delegated the authority to 
the Director of ATF to investigate, administer, and enforce the Federal 
firearms laws. See 28 CFR 0.130.

[[Page 2680]]

    Finally, the Department has the authority to require CLEO 
notification for the same reason that it has the authority to require 
CLEO certification. Sections 5812 and 5822 give the Department broad 
authority to promulgate regulations governing application forms, 
including regulations pertaining to the identification of a firearm and 
its maker or, in the case of a transfer, its transferee and transferor. 
See 26 U.S.C. 5812(a), 5822. Both sections provide that applications 
``shall be denied'' if the transfer, receipt, making, or possession of 
the firearm would place the transferee or person making the firearm in 
violation of law. See id. Neither, however, ``restricts the Secretary's 
broad power to grant or deny applications in any other respect.'' 
Lomont, 285 F.3d at 17. The notification requirement thus falls within 
the Department's authority to request information from individuals who 
seek to make or transfer NFA firearms that helps it to fulfill its 
statutory mandate to prevent prohibited individuals from obtaining NFA 
firearms.
b. Authority To Require CLEO Certification
Comments Received
    Many commenters stated that the proposed extension of the CLEO 
certification requirement exceeds ATF's statutory authority. A few 
commenters noted that ATF cites to 26 U.S.C. 5812 and 5822 of the NFA 
as the statutory authority for the proposed rule, but disputed that 
these statutory provisions provided ATF with authority to impose a CLEO 
certification requirement on individuals, much less a responsible 
person of a legal entity. These commenters argued that section 5812 
authorizes ATF to prescribe the form of NFA applications with the 
limited purpose of identifying the transferor, transferee and firearm, 
and that seeking opinions from local CLEOs goes beyond establishing the 
actual identity of the applicant.
    One commenter asserted that the Attorney General cannot delegate 
the duties of the office to a CLEO--a non-Federal agency--as a CLEO's 
arbitrary or capricious actions, or failure to act, are not subject to 
review under the Administrative Procedure Act (5 U.S.C. 551-559). Other 
commenters stated that ATF cannot delegate this authority arbitrarily 
to itself or to a third party without authorization from Congress and 
that requiring CLEO certification gives ``absolute and unchecked 
discretion'' to local CLEOs. Another commenter stated that no provision 
in the NFA provides ATF the authority to refuse to issue a ``stamped 
application form'' when the applicant can be identified by a method 
other than CLEO certification. This commenter stated that section 
5812(a)(3) only requires that an individual be identified by 
fingerprints and photographs, not by CLEO certification. All these 
commenters contended that the local CLEO certification should be 
eliminated not expanded.
Department Response
    Although the Department does not agree with the assertions that ATF 
lacks statutory authority to require CLEO certifications, for other 
reasons described herein at section IV.C.1.a-d, the Department has 
removed the CLEO certification requirement from the final rule. Since 
removal of the CLEO certification requirement is the ultimate result 
advocated by these commenters, in-depth discussion of their assertions 
is not necessary to the final rule.
    In addressing the comments, it must be noted that Congress provided 
the Attorney General with the authority to require certain 
identification procedures for transferors and transferees. See 26 
U.S.C. 5812(a). These sections require fingerprints and photographs for 
individuals at a minimum, but the information that the Attorney General 
can seek is not limited to these things. CLEO certification and CLEO 
notification are also identification procedures authorized by section 
5812(a).
    Under the proposed regulation, ATF would not have delegated the 
application process to the CLEO. ATF merely proposed to extend to the 
responsible persons of trusts and legal entities the CLEO certification 
requirement, which was the same process that had been in place for many 
years with individuals. A certification was just one step involved in 
the process of determining if an application could be approved. These 
issues are moot, however, as ATF will adopt a CLEO notification process 
instead.
c. CLEO Issues With Certifying
Comments Received
    Numerous commenters, including trade associations and individuals, 
discussed the reasons some CLEOs refused to approve NFA applications. 
These commenters disputed ATF's statement in the proposed rule that 
liability concerns are a primary reason some CLEOs refuse to approve 
NFA applications. A commenter stated that ATF was wrong to rely on this 
``false premise,'' and requested that ATF perform a ``systematic study 
and survey of CLEOs to develop a solution to the actual problem at hand 
rather than disrupt established procedures for entities developed over 
the past 80 years.'' Many commenters stated that CLEOs often refuse to 
sign based on personal or political concerns, not civil liability 
concerns. Some of the stated political reasons include that the 
transferee did not donate to their political campaigns; general 
political liability--as opposed to civil liability-- concerns; and the 
CLEO's personal disagreement with the policy choices of the CLEO's 
States and Congress to permit private ownership of NFA firearms. 
Another commenter stated that there are jurisdictions where CLEOs 
collectively refuse to sign, exercising their ``personal fiat.'' Many 
commenters related personal experiences purporting to show that CLEOs 
in certain regions and jurisdictions refuse to sign due to political 
party affiliation and ideological beliefs. Several commenters urged ATF 
to place time limits within which CLEOs would be required to act on 
certifications requests; if the CLEO failed to act on the certification 
request within the time limit, ATF would be required to proceed as if 
the certification had been approved. Many commenters referenced 
newspaper articles and other sources that provide quoted statements 
from local CLEOs regarding their reasons for refusal and their publicly 
announced policies to no longer consider applications for silencers, 
short-barreled shotguns, explosives, etc. Another commenter asked if 
ATF has proposed guidelines that CLEOs must follow to ensure no 
discrimination. This commenter also asked if ATF will establish a 
system to prosecute and reprimand CLEOs who refuse to provide 
certification when there are no issues preventing such certification.
    NFATCA's comment noted that in the NPRM ATF had accurately cited a 
quote from NFATCA's 2009 petition regarding CLEO concerns over 
liability (``[s]ome CLEOs express a concern of perceived liability; 
that signing an NFA transfer application will link them to any 
inappropriate use of the firearm''), but asserted that this point was 
secondary to its primary concern that the CLEO certification 
requirement was unlawful. NFATCA further asserted that in focusing on 
liability, ATF had failed to acknowledge that many CLEOs would not sign 
NFA certifications for reasons other than liability, such as budgetary 
concerns and opposition to private ownership of NFA firearms, or 
firearms in general.

[[Page 2681]]

    NFATCA, the American Silencer Association (ASA),\6\ and a majority 
of other commenters, all advocated complete elimination of the CLEO 
certification requirement.
---------------------------------------------------------------------------

    \6\ Now known as the American Suppressor Association.
---------------------------------------------------------------------------

Department Response
    The Department acknowledges that there are many reasons why a CLEO 
may not sign an NFA application. Taking these concerns and other 
factors into consideration, the Department has removed the CLEO 
certification requirement from the final rule.
    The Department notes, however, that its decision to remove the 
certification requirement from the final rule does not reflect 
agreement with assertions, such as those put forward by NFATCA in the 
comments, that the CLEO certification requirement is unlawful.
d. Alternatives to CLEO Certification
Comments Received
    The majority of commenters were opposed to the expanded CLEO 
certification requirement, and many suggested alternatives to this 
requirement. The most commonly cited alternative was to completely 
eliminate the requirement for all NFA transfers. Many commenters 
suggested that instead of CLEO certification, ATF could require 
notification whereby the individual or the responsible person executing 
the form in the name of the legal entity must provide the local CLEO 
with a copy of Form 1, 4, or 5 submitted to ATF, and provide the CLEO a 
reasonable time for review. If, by the end of that time period, the 
CLEO has not provided ATF with information showing cause for denial, 
ATF should consider the application cleared at the CLEO level and 
proceed with the application. The commenters believed this alternative 
would meet the statutory requirements of sections 5812 and 5822 of the 
NFA without allowing CLEOs to arbitrarily deny applications. The time 
period that commenters considered ``reasonable'' varied, with 
suggestions for periods of 7, 15, 30, and 60 business days. A commenter 
noted that a similar process is already used with Form 7. Several 
commenters noted that NFATCA had recommended this alternative in its 
petition (i.e., eliminating the CLEO certification requirement and 
replacing it with notification to the CLEO of the pending transfer, 
combined with ATF conducting a NICS check of an individual and 
principle officers of a trust or legal entity). Several commenters 
noted that ATF previously indicated its intent--per published abstracts 
in the Unified Regulatory Agenda in 2011 and 2012--to propose 
notification instead of CLEO certification and eliminate such 
certification altogether.\7\ At least one of these commenters requested 
that ATF provide a reasoned explanation for changing course from a 
regulatory alternative that would be more ``cost effective, serve 
legitimate statutory objectives, and avoid legal vulnerabilities.''
---------------------------------------------------------------------------

    \7\ Fall 2011 Unified Regulatory Agenda (https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201110&RIN=1140-AA43) and 2012 
Unified Regulatory Agenda (https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201210&RIN=1140-AA43).
---------------------------------------------------------------------------

    A few commenters suggested ways to amend Sec. Sec.  479.63 and 
479.85, as well as Forms 1, 4, and 5, to provide for a notification 
process similar to the one the Department has chosen to adopt. One 
commenter provided specific language to replace the CLEO certification 
on Form 1. Another commenter suggested replacing the CLEO certification 
language on Form 4 with a certified statement--under penalty of perjury 
or falsification of an official government form--by the individual or 
the responsible person of the legal entity executing the form. This 
statement would indicate that such individual or responsible person has 
``conferred with their attorney and/or the local law enforcement 
officials and that the individual or the entity and each `responsible 
person' in the entity are not prohibited by local or state law from 
owning or possessing the items being transferred to them on the form 
and that they are not a prohibited `alien' who cannot own or possess 
the items.''
    Many commenters supported eliminating CLEO certification and 
instead requiring all members of a trust, once the application is 
returned ``approved'' from ATF, to undergo a NICS check prior to the 
transfer of the NFA firearm. One commenter suggested that ATF keep the 
NICS check requirement for the individual or responsible person 
completing Form 4473 to obtain the transferred item. This commenter 
also suggested that ATF keep the current process where only the 
individual or one of the responsible party(s) of a legal entity 
complete and sign the transfer form.
    Many commenters suggested that if the objective is to prevent 
restricted persons from owning NFA items, a simpler solution would be 
to substitute fingerprinting and background checks for the CLEO 
certification requirement for all NFA transfers. Many other commenters 
concurred with eliminating CLEO certification and making NFA weapons 
point-of-sale items as they saw no difference between the background 
checks performed by ATF's NFA Branch and those performed by FFLs.
    A commenter stated that the best alternative is to either keep the 
status quo--requiring CLEO certification for individual applicants--or 
eliminate the CLEO certification requirement for trusts while retaining 
the need for a standard ``NFA-style'' background check for each 
individual. Other commenters requested that ATF consider either no 
change to ATF's stance on trusts and legal entities regarding CLEO 
certification or remove the CLEO certification requirement for all NFA 
items. Other commenters urged ATF to eliminate the CLEO certification 
requirement for all transfers, replacing it with various forms of 
automated background checks. Another commenter suggested an ``equitable 
solution'' would be to have an applicant's local police department 
provide a ``letter of good conduct,'' which states that ``you are who 
you say you are and provides a list of any criminal offenses you may 
have had.'' This commenter named a local police department that issued 
these letters quite regularly.
    Many commenters questioned the intention of CLEO certification. If 
the objective is to verify the applicant's identity (i.e., that the 
applicant is the one signing the form and is the person in the provided 
photograph), these commenters maintained that any Notary Public could 
accomplish this objective. Other commenters supported methods used by 
other Federal agencies to verify identification, such as local police 
departments, State police, or fingerprinting companies. Another 
commenter suggested that instead of CLEO certification, that local ATF 
offices take the applicants' photographs and fingerprints, perform 
background checks, and approve applications on the spot. This commenter 
suggested that the local ATF offices could additionally perform a NICS 
check as required by Form 4473.
    Many other commenters suggested alternatives under which ATF could 
require individual applicants and responsible persons to provide 
various forms of government-issued identification with photographs to 
verify identity. One commenter suggested revising the application forms 
to include a page for individuals and all responsible persons of legal 
entities to attach photograph(s) showing the front and back of a 
currently valid State-issued identification or driver's license. 
Another commenter stated that ATF only needs a full name, date of 
birth,

[[Page 2682]]

and Social Security number to perform background checks. Another 
commenter suggested that instead of having CLEOs verify fingerprints 
and photographs, there be a database containing an approved set of 
fingerprints and photograph of each applicant. Another commenter 
questioned the rationale for relying on CLEO approval for Federal law, 
and suggested for improving efficiency to either make the entire 
process Federal or have the entire process rely on ``local/state'' law.
    Another commenter suggested that ATF reform the process to have the 
$200 tax either be an ``excise tax'' payable at the point of sale or, 
with the advances in technology, have the retailer print out a tax 
stamp at the point of sale. This would enable the purchaser to complete 
a Form 4473, enable a NICS check to be performed, and enable remittance 
of the taxes through the retailer.
    Although many commenters preferred that the CLEO certification 
requirement be completely eliminated, they also provided compromise 
positions if ATF were set on keeping and expanding the CLEO 
certification requirement. These commenters suggested that ATF make the 
CLEO certification a ``shall issue'' and require CLEOs to decide based 
on legal restrictions and obligations, and sign off on the 
certification, if the background check is ``clean'' unless there is a 
valid reason not to sign (e.g., criminal or mental health history).
    If ATF were to maintain the certification, a few commenters 
suggested changing the sequence of CLEO review by requiring ATF to 
provide the application information to the CLEO only after conducting a 
review. Many commenters suggested that ATF provide for judicial review 
of instances where CLEOs would not sign off on the certification; 
others requested that the CLEO be required to state the reason for the 
denial and provide ``real tangible evidence'' and state ``specific, 
objective and legally relevant reasons'' for the non-concurrence or 
denial.
    Several commenters suggested that Forms 1, 4, and 5 be revised to 
provide an area indicating that the local CLEO would not sign off on 
the form, and in such instances ATF could require more information or 
perform a more extensive background check. For example, one commenter 
suggested adding three signature lines on the forms: (1) First line--
for the CLEO to sign and state ``no disqualifying information;'' (2) 
second line--for the CLEO to sign and state ``information indicating 
disqualification'' and for the CLEO to explain the disqualification; 
and (3) third line--for the applicant to certify ``I certify I 
submitted this to this CLEO (name address) over 30 days ago and 
received no response.''
    Many commenters recommended that ATF broaden the list of officials 
who could provide certifications, to include local district attorneys, 
judges, officials in local ATF offices, or a designated official in 
each State, among others.
    Many commenters suggested that individual applicants and 
responsible persons of legal entities who hold a concealed carry permit 
or license in the State where they reside--authorizing them to 
purchase, obtain, or carry weapons--should be exempt from the CLEO 
certification requirement, as well as the photograph and fingerprint 
requirements, since State and Federal background checks have already 
been performed and verified.
    One commenter requested that ATF consider not requiring CLEO 
certification for active and retired law enforcement officers, active 
and retired military officers, including Guard and Reserve officers, 
and any government employee with a security clearance, as well as FFLs. 
Other commenters suggested that the CLEO certification requirement be 
removed for silencer ownership. Another commenter recommended requiring 
CLEOs to sign off on forms in States where SBRs, machineguns, and 
silencers were legal. Another commenter recommended that ATF require 
differing levels of CLEO certification per NFA item, and that silencers 
and ``any other weapons''should not be subject to CLEO certification.
    Another commenter suggested simply that a large red ``F'' be placed 
on the driver's license of a convicted felon to ensure that criminals 
do not obtain or use firearms, and proprietors of gun ranges and 
sellers of ammunition could easily ascertain who is permitted to do 
business with them and who is not.
Department Response
    Although the Department does not agree with all of the concerns 
expressed or suggestions made in the above-summarized comments, it does 
concur with the conclusion of many commenters that the benefits of CLEO 
certification do not outweigh the costs of the CLEO certification 
requirement, and that alternate procedures will satisfy the statutory 
requirements of section 5812 and 5822. Consequently, as previously 
noted, the Department has removed the CLEO certification requirement 
from the final rule. As an alternative to certification, the final rule 
adopts a CLEO notification requirement that is similar to that 
suggested by many commenters. In conjunction with the mandatory 
background check required of all applicants, including responsible 
persons of trusts and legal entities, the requirement of CLEO notice 
fulfills the primary objectives that have supported the certification 
requirement: It provides the CLEO awareness that a resident of the 
CLEO's jurisdiction has applied to make or obtain an NFA weapon and 
affords the CLEO an opportunity to provide input to the ATF of any 
information that may not be available during a Federal background check 
indicating the applicant is prohibited from possessing firearms. As 
noted in the NPRM, although the NICS provides access to a substantial 
number of records to verify if an individual is prohibited from 
possessing firearms, CLEOs often have access to records or information 
that has not been made available to NICS. Providing notice to the CLEO 
of a prospective NFA transfer with instructions on how to relay 
relevant information to ATF will help fill possible information gaps in 
NICS by affording the CLEO a reasonable opportunity to provide relevant 
information to ATF.
    To effectuate the CLEO notice requirement, the Department is 
revising the regulations in Sec. Sec.  479.63 and 479.85 to require the 
applicant or transferee, and all responsible persons, to provide a 
notice to the appropriate State or local official that an application 
is being submitted to ATF, and conforming changes will be made to ATF 
Forms 1, 4, and 5. In addition, responsible persons for trusts or legal 
entities will be required to provide CLEO notification on ATF Form 
5320.23, NFA Responsible Person Questionnaire.
    Consistent with the recommendation of many commenters, the changes 
to Forms 1, 4, and 5 will also include a certification requirement by 
the applicant or transferee under penalty of perjury, that the 
applicant or transferee has provided notification to the CLEO; a 
corresponding change will be made to Form 5320.23 for certification by 
responsible persons of trusts and legal entities. Applicants will also 
be required to provide the name and location of the CLEO to whom the 
form was sent, and date the form was sent. Removal of the CLEO 
certification requirement also means that CLEOs will no longer need to 
attest to the authenticity of the applicant's or transferee's 
photographs and fingerprints. To ensure verification of identity, 
however, the official taking the applicant/transferee's fingerprints 
must sign the fingerprint card to certify the official has verified 
identity of the applicant/transferee. In reaching the decision to 
substitute CLEO notification for certification, the Department

[[Page 2683]]

determined that the proposal to have local ATF offices process NFA 
applications and conduct background checks was neither efficient nor 
feasible due to other mission requirements and resource constraints. 
For a discussion of other suggested alternatives the Department has 
elected not to implement, see section IV.C.3.c (addressing 
recommendations that background checks be conducted only at time of 
transfer) and section IV.B.1.b (addressing recommendations that NICS 
checks alone are sufficient for NFA transfers).
    The Department recognizes comments received suggesting that the 
Department (1) require that CLEOs certify forms, (2) require that CLEOs 
provide reason for not certifying forms, (3) make judicial review 
available when a CLEO does not certify a form, and (4) expand the 
number and types of officials who may provide certifications. As the 
certification has been replaced with a notification, the suggested 
changes are no longer a necessary part of the process. Additionally, 
the Department rejects comments proposing that ATF, rather than the 
applicant, provide a copy of the application to the CLEO; ATF is 
prohibited from releasing an individual's tax return information.
    The Department rejects the suggestion of collecting the ``excise 
tax'' and printing out the tax stamp at the point of sale. The 
Department believes that allowing nongovernmental entities to issue tax 
stamps could lead to fraud and abuse.
    The Department has not adopted suggestions that the fingerprints 
and photograph requirement be replaced by State permitting or licensing 
because such State-issued documents may not meet the biometric 
fingerprint check requirements of 26 U.S.C. 5812 and because the 
background check process for each State-issued concealed carry permit 
or license is different and not all permits or licenses qualify as an 
exception to a background check. Additionally, it is unclear to what 
extent the Department has the legal authority to require local and 
State officials to aid it in implementing Federal firearms regulations.
    The Department recognizes comments regarding exempting certain 
categories of persons and certain types of NFA firearms from CLEO 
certification. While CLEO certification has been replaced with a CLEO 
notification, all applicants, including active and retired law 
enforcement, active and retired military officers, and government 
employees with security clearances, and all types of NFA firearms, 
including silencers, will be subject to the notification requirement.
    The Department does not adopt the suggestion of special markings on 
a driver's license for convicted felons. The Department does not have 
the authority to require this information on State-issued 
identification documents.
2. Fingerprints and Photographs for Background Checks
a. Authority To Require Submission of Fingerprints and Photographs of 
Responsible Persons for Trusts and Legal Entities
Comments Received
    Many commenters stated that the proposed rule exceeds ATF's 
statutory authority to require photographs or fingerprints of 
responsible persons. One of these commenters, NFATCA, acknowledged that 
its 2009 petition requested a requirement that responsible persons of 
legal entities submit photographs and fingerprints, but advised that it 
has changed its conclusion as to the statutory authority of ATF to 
impose this requirement, and was withdrawing its 2009 recommendation. A 
few commenters argued that the provision of the NFA that ATF cited as 
authority for extending the photograph and fingerprint requirement to 
responsible persons of legal entities, section 5812, does not support 
ATF's position because the text of that section extends the photograph 
and fingerprint requirement only to individuals, and not to legal 
entities.\8\ Because section 5812 of the statute specifically names 
only one class of transfers covered by this requirement (i.e., 
individuals), they argue, ATF is without statutory authority to extend 
it to any other type of transfer (i.e., those involving legal 
entities).
---------------------------------------------------------------------------

    \8\ The commenters limited their discussion to the text of 26 
U.S.C. 5812 but noted that 26 U.S.C. 5822 provided substantively 
similar language in the context of an application to manufacture an 
NFA firearm.
---------------------------------------------------------------------------

Department Response
    The Department does not agree with comments that this rulemaking 
exceeds its authority by requiring photographs or fingerprints of 
responsible persons. Information that the Attorney General can seek is 
not limited to fingerprints and photographs for individuals. The 
inclusion of individual transfers as a specific category that requires 
the submission of fingerprints and photographs in 26 U.S.C. 5812 does 
not equate to a limitation on the authority of ATF to extend that 
requirement to transfers involving trusts or legal entities. See 26 
U.S.C. 5812.
    The Department believes it may require trusts and legal entities to 
submit identifying information regarding their responsible persons as a 
component of the identifying information it requires a trust or legal 
entity to submit prior to obtaining authorization to receive or make an 
NFA firearm. Sections 5812 and 5822 provide broad authority for the 
Department to require the identifying information of any applicant to 
make or transfer an NFA firearm. Section 5812 prohibits the transfer of 
a firearm ``unless . . . the transferee is identified in the 
application form in such manner as ATF may by regulations prescribe.'' 
Similarly, section 5822 prohibits the making of any firearm unless the 
maker has ``identified himself in the application form in such manner 
as ATF may prescribe.'' The Department views the identities of 
responsible persons associated with trusts and legal entities as a 
vital aspect of the identities of those entities themselves. The very 
purpose of the NFA would be undermined if a criminal could use a trust 
or legal entity the criminal controls to obtain an NFA firearm without 
submitting any personally identifying information to the Department.
b. Alternatives To Requiring All Responsible Persons To Provide 
Fingerprints and Photographs
Comments Received
    Many commenters asserted that all NFA applicants, including legal 
entities, should be required to undergo background checks and submit 
fingerprints and photographs. Some of these commenters differed, 
however, as to which individuals associated with a legal entity should 
be subject to these requirements. Several commenters supported 
background checks for trustees only. A few commenters asserted that 
successor trustees and other members of trusts (other than the original 
trustee) should be excluded. Many commenters stated that beneficiaries 
do not have actual possession and should also be excluded. Another 
commenter suggested requiring all responsible persons to submit a 
background check annually to the ``head of the trust'' to be maintained 
on file, and to make that head person responsible for all law 
enforcement approvals. A few commenters supported background checks on 
the ``main person'' in the trust or legal entity. Other commenters 
supported background checks on a single responsible person only. 
Several

[[Page 2684]]

commenters supported background checks only on the person in the legal 
entity picking up the firearm.
    A few commenters suggested requiring a one-time fingerprinting and 
background check of responsible persons associated with a trust at the 
creation of the trust, not on every transfer of regulated items 
contained in the trust. Another commenter suggested requiring only the 
executor to provide fingerprints and photographs and undergo a 
background check one time, and that this process be repeated whenever 
the executor dies or forfeits the executor's position to the next 
person appointed as executor or owner of the corporation. Another 
commenter suggested only requiring fingerprints and photographs from 
trustees once, or perhaps once every ten years upon a new NFA item 
form. This commenter urged that ATF also adopt the ``once every ten 
years rule'' for individuals, too.
    In addition to recommendations specific to trusts and legal 
entities, several commenters suggested that ATF devise alternative 
methods to identify individuals. Some commenters recommended the use of 
digital technology to submit photographs and fingerprints, citing as 
examples other Federal agencies such as the Securities and Exchange 
Commission (which uses a digital fingerprinting service) and the 
Transportation Security Agency (which uses a digital service to perform 
background checks on its employees).
Department Response
    The Department agrees with comments that beneficiaries should not 
generally be included in the definition of responsible person and has 
removed beneficiaries from the definition in the final rule. The 
Department does not agree with comments that background checks should 
only be conducted on the ``main person'' in the trust or legal entity, 
a single responsible person for the trust or legal entity, or only the 
person picking up the firearm. These recommendations fail to account 
for multiple individuals within a trust or legal entity that will 
exercise control over NFA firearms. The ``responsible person'' 
definition in the final rule accounts for such individuals, and 
requires them to meet the same requirements that apply to all other 
individuals who apply to make or possess an NFA firearm.
    The Department concludes that proposals involving one-time or 
periodic background checks and submission of fingerprints and 
photographs--for example at the creation of a trust or legal entity or 
only once every ten years--do not meet the NFA's requirement that each 
NFA transaction must be accompanied by an individual application and 
registration. See 27 CFR 479.62 and 479.84. Moreover, such proposals do 
not adequately ensure that an applicant is not prohibited at the time 
each NFA weapon is made or acquired; a background check in conjunction 
with each application is needed to ensure no change in status has 
occurred. With respect to allowing a single-submission of fingerprints 
and photographs, the NFRTR is a tax registry that does not have the 
technical capacity or statutory authorization to track such documents. 
The Department acknowledges that other Federal agencies utilize 
electronic fingerprinting technology. However, ATF does not currently 
have the resources to utilize this technology.
3. Legal Entities
a. Purposes of Trusts and Legal Entities
Comments Received
    Many commenters stated that the proposed rule ignored or 
misunderstood the common circumstances surrounding the creation of an 
NFA trust, and did not account for the ``myriad of innocuous and 
legitimate'' reasons why a trust would own an NFA item, for example to 
pass the NFA item to one's heirs. Several commenters stated that the 
proposed rule, by naming a beneficiary as a ``responsible person,'' 
deprived individuals from common estate planning techniques (e.g., 
using living trusts and naming their minor children as beneficiaries). 
In addition, a few commenters stated that the proposed rule intruded 
upon the traditional uses of trusts and upon the rights of settlors to 
manage their estate plans by proposing that any new responsible person 
must submit a Form 5320.23 as well as a CLEO signoff within 30 days of 
the responsible person's appointment.
    Many commenters stated that trust use is on the increase as many 
people live in areas where the CLEO simply will not sign an NFA 
certification, causing law-abiding citizens to use trusts and 
corporations to bypass the CLEO certification requirement in order to 
lawfully make or obtain an NFA weapon. One of these commenters added, 
``[t]he simple truth is, corporations and trusts are formed NOT to 
circumvent background checks, but to take power away from an antiquated 
unfair system of CLEO signoff.''
    Many commenters stated that a trust's main purpose is to hold 
assets, property, and expensive collector investments for inheritance, 
and as such is a critical estate planning and management tool. Other 
commenters stated that trusts are being used to lawfully permit 
multiple people and families to share access to, and use, legally owned 
and registered NFA items. These commenters noted that without a trust, 
only the person who directly purchased the NFA item can lawfully 
possess it. Another commenter asserted that absent ownership by a trust 
the NFA item must always be in the registered individual's possession 
when it is out of the safe. Several commenters noted that the NFA makes 
it unlawful for any person ``to possess a firearm that is not 
registered to him in the National Firearms Registration and Transfer 
Record.'' 26 U.S.C. 5861(d). Hence, if the item is registered only to 
an individual, and not a trust or legal entity, then family members of 
the registrant who possess or use the NFA item are exposing themselves 
to serious criminal charges. See 26 U.S.C. 5871, 5872. Several 
commenters provided personal examples where trusts prevented legal 
complications by allowing possession of the NFA item by individuals 
named in a trust during life changing events (e.g., military deployment 
or death).
    Many commenters stated that a trust eases the burden of 
transferring NFA items upon the death of the grantor/settlor. Other 
commenters stated that a trust prevents the need to pay a $200 transfer 
tax, amounting to a ``double tax,'' and file another Form 4 to transfer 
and retain the property, should one of the family members die before 
the other family member. Other commenters stated that trusts are used 
to ensure that remaining family members could not be prosecuted for 
being in possession of an illegal firearm upon death of the person who 
obtained the NFA tax stamp. Several other commenters stated that 
another benefit to a trust is that a settlor can list the settlor's 
children as beneficiaries, and after the settlor's death, a trustee 
will continue to oversee the items until the children are of legal age 
to possess the items. Many commenters also stated that these 
beneficiaries should not have to submit to their civil liberties being 
violated simply because they inherited private property.
    Two commenters stated that most (NFA) trusts are being used to 
lawfully obtain silencers. These commenters stated that if ATF really 
desired to reduce the use of trusts, it should remove silencers from 
the NFA ``list.'' Several commenters noted that trusts are established 
in a variety of contexts (e.g., voluntary or mandated by law; by a 
decedent's will or during the lifetime of a settlor), and some of the 
contexts

[[Page 2685]]

should ``amelioriate'' concerns regarding potential misuse. These 
commenters, and others, noted that many trusts are specialized and 
designed as ``gun trusts'' with safeguards, pertinent to the settlor, 
trustees, and beneficiaries, to ensure compliance with the regulation 
of NFA firearms.
    A commenter noted that the Seventh Circuit Court of Appeals held 
that a trust is a proper legal entity for holding a firearm where the 
settlor was prohibited, provided that the trust included proper 
safeguards to ensure that a prohibited person did not possess the 
firearm. Miller, 588 F.3d 418. Some commenters noted that trust 
agreements may exclude prohibited persons. Several commenters provided 
examples of language and provisions in trusts designed specifically to 
hold NFA items that required full compliance by all members and 
trustees with laws governing possession of NFA firearms. For example, 
one commenter cited to provisions in her trust stating that ``any 
trustee that is or becomes an ineligible person as defined by Federal 
law or State law must be deemed as to have immediately resigned and 
must immediately surrender all NFA items held on behalf of the trust.'' 
Several commenters asserted that ATF should set a wide variety of 
requirements necessary for a trust to hold NFA items.
    Another commenter stated that, if necessary, ATF could add 
additional language to the transferee's certification, similar to that 
already found in Forms 1, 4, and 5, to ensure that the responsible 
person understands that it is unlawful to make the firearms available 
to prohibited persons, and could add a definition of ``prohibited 
person'' consistent with 18 U.S.C. 922(g) in the ``Definitions'' 
section of the application. This commenter proposed specific language 
for this purpose.
Department Response
    The Department is aware of the legitimate reasons individuals may 
choose to utilize a trust or legal entity to acquire an NFA item. These 
include facilitating the transfer of an NFA item to a decedent's heirs 
and providing a mechanism that allows several individuals to lawfully 
possess the same NFA item. To the extent that courts have recognized a 
felon's ability to employ a trust or other device to maintain an 
ownership interest, so long as there is no ability to physically 
possess or control the firearm, trusts have been employed. The 
Department also recognizes that some trusts created to hold NFA assets 
contain provisions seeking to ensure that Federal, State, and local 
laws regarding possession and transfer of NFA firearms are not 
violated.
    The final rule that the Department is promulgating is not designed 
or intended to reduce the use of trusts for estate planning or other 
lawful purposes. Instead, provisions of the final rule are intended to 
facilitate the ability of trusts and legal entities to comply with the 
statutory requirements of the NFA through the establishment of tailored 
mechanisms that help ensure prohibited persons are not able to misuse 
such entities to illegally obtain NFA firearms. The final rule 
accomplishes this objective by defining as responsible persons those 
individuals associated with a trust or legal entity who are able to 
control firearms, and requiring those individuals to undergo the 
background checks and submit fingerprints and photographs required by 
statute and ATF's regulations.
    With respect to the concerns voiced by many commenters regarding 
the impact a new rule may have on estate planning, the provisions of 
the final rule do not materially alter long-existing procedures ATF has 
established to facilitate the registration of NFA firearms to legal 
heirs. Those procedures take into account that a decedent's registered 
NFA firearm(s) must be managed by the executor or administrator of the 
estate, and provide for a reasonable amount of time to arrange for the 
transfer of the firearms to the lawful heir. They further provide that 
a decedent's registered NFA firearm(s) may be conveyed tax-exempt to 
lawful heirs as an ``involuntary transfer'' resulting from the death of 
the registrant.
    In promulgating the final rule, the Department has also evaluated 
the assertions by several commenters that:
     New Federal regulations are not necessary because many 
trusts designed to hold NFA assets contain voluntary, self-imposed, 
provisions designed to preclude prohibited persons from acquiring NFA 
weapons through the trust
     ATF should set requirements mandating provisions in trust 
agreements for trusts that acquire NFA weapons

With respect to the assertion that trust self-regulation renders new 
regulation unnecessary, the Department notes that ATF has no authority 
to enforce private trust agreements, nor may private trusts have the 
authority to obtain NICS background checks of associated individuals. 
Hence, self-regulation does not adequately ensure statutory compliance. 
With respect to suggestions ATF should regulate the terms of trust 
agreements for trust holding NFA firearms, ATF believes it is more 
efficient and effective simply to require responsible persons to submit 
to background checks than to dictate the language in trust documents.

    Finally, the Department does not agree with commenters' assertions 
that additional language needs to be added to the certification in ATF 
Forms 1, 4, and 5 regarding firearm possession by prohibited persons. 
The instructions on these Forms already include specific information on 
who is considered a prohibited person.
b. Number of Trust and Legal Entity Form 1, 4, and 5 Applications
Comments Received
    A commenter desired more information and clarification concerning 
the number of legal entities that file Form 1, 4, and 5 applications. 
This commenter stated that the NFATCA petition--as described by the 
NPRM, section II. Petition--contends that the number of applications to 
acquire NFA firearms via a legal entity has increased significantly. 
This commenter noted that this same section of the NPRM also provided 
ATF research data showing that the number of Form 1, 4, and 5 
applications submitted to ATF by legal entities that are not FFLs have 
increased from ``approximately 840 in 2000 to 12,000 in 2009 and to 
40,700 in 2012.'' This commenter could not determine ATF's statistical 
methodologies, as they were ``neither stated nor explained'' in the 
NPRM, and ATF's analyses did not seem to allow for the same legal 
entity filing multiple Form 1, 4, and 5 applications during the 
reporting periods CY 2000, CY 2009, and CY 2012. The commenter 
contended that it was not uncommon for a legal entity (or an 
individual) to file multiple Form 1, 4, and 5 applications during a 
single calendar year. In addition, this commenter noted that ATF did 
not provide corresponding data to show how many non-legal entities or 
natural persons submitted to ATF Form 1, 4, and 5 applications during 
the same reporting periods (i.e., CY 2000, CY 2009, and CY 2012). As a 
result, this commenter maintained that ATF's methodologies used in the 
NPRM left many important questions unanswered, including:

    (1) What are the actual number of separate and distinct Legal 
Entities that submitted ATF Form 1, 4, and 5 applications during 
these same reporting periods, including CY 2000, CY 2009, and CY 
2012?
    (2) What are the actual number of separate and distinct non-
Legal Entities or natural

[[Page 2686]]

persons that submitted ATF Form 1, 4, and 5 applications during 
these same reporting periods, including CY 2000, CY 2009, and CY 
2012?
    (3) What is the increase (or decrease) in the actual number of 
separate and distinct Legal Entities that submitted ATF Form 1, 4, 
and 5 applications during these same reporting periods, including CY 
2000, CY 2009, and CY 2012?
    (4) What is the increase (or decrease) in the actual number of 
separate and distinct non-Legal Entities or natural persons that 
submitted ATF Form 1, 4, and 5 applications during these same 
reporting periods, including CY 2000, CY 2009, and CY 2012?
    (5) How does the increase (or decrease) in the actual number of 
separate and distinct Legal Entities that submitted ATF Form 1, 4, 
and 5 applications compare with the increase (or decrease) in the 
actual number of separate and distinct non-Legal Entities or natural 
persons that submitted ATF Form 1, 4, and 5 applications during 
these same reporting periods, including CY 2000, CY 2009, and CY 
2012?

Another commenter also desired information regarding parties that file 
multiple applications, and asked how many of the applications received 
during the CY 2012 represent parties who have applied for more than one 
NFA-registered item.

    Another commenter stated that there was an ``unexplained 
discrepancy'' between the numbers that ATF used in Table A of the NPRM 
for the number of applications for legal entities received in 2012 and 
the numbers ATF used in its ``Firearms Commerce in the United States 
Annual Statistical Update 2013'' (ATF's 2013 Statistical Update), 
available at https://www.atf.gov/sites/default/files/assets/pdf-files/052013-firearms-commerce-in-the-us-annual-update.pdf. This commenter 
provided statistics from Exhibit 7 of this statistical update, which 
showed the number of applications for CY 2012 as totaling 230,937 with 
the number of applications for Form 1 as 7,886; Form 4 as 52,490; and 
Form 5 as 170,561. This commenter noted that ATF's 2013 statistical 
update did not break down the application numbers for legal entities, 
individuals, or qualified FFLs (Gov/FFLs) so the commenter did not have 
any numbers to compare with the breakdown done in the NPRM, Table A. 
However, this commenter compared the numbers provided in Table A of the 
NPRM with those in ATF's 2013 Statistical Update Exhibit 7 as follows:

------------------------------------------------------------------------
                                            Statistical Update CY 2012 #
      Table A CY 2012 # applications                applications
------------------------------------------------------------------------
ATF Form 1: 9,662.........................  ATF Form 1: 7,886.
ATF Form 4: 65,085........................  ATF Form 4: 52,490.
ATF Form 5: 9,688.........................  ATF Form 5: 170,561.
                                           -----------------------------
    Total: 84,435.........................  Total: 230,937.
------------------------------------------------------------------------

This commenter stated that ATF has not explained why it excluded over 
146,500 legal entity applications in its basis for rationalizing the 
proposed rule change, as well as its cost and economic impact analyses. 
As a result, this commenter stated that ATF's inaction called into 
question the ``validity and integrity of the assumptions, arguments, 
analyses, and conclusions'' in the proposed rule. Therefore, this 
commenter asked ATF to clarify and revise, if needed, its statistical 
methodology.
Department Response
    The Department has carefully considered all commenters' concerns 
relating to the number of legal entities that file Form 1, 4, and 5 
applications. For purposes of the NPRM, ATF conducted an analysis of 
all applications actually received in the NFA Branch in CY 2012.
    The total number of transfers to trusts, corporations, governmental 
entities, and individuals cited in the NPRM were taken from the total 
number of all applications received. When an application is received in 
the NFA Branch it is counted one time. Additionally, each application 
covers the transfer of a separate firearm with a separate and unique 
serial number. Thus, the transfer or making of an NFA firearm is 
counted each and every time an application is submitted. There is no 
system in place that counts the number of applications received at 
different times from the same applicant. However, such a system would 
have been irrelevant for purposes of the NPRM. The key fact is the 
number of transfers made by legal entities without a background check. 
The fact that legal entities may have made more than one transfer does 
not lessen the concern. Also, for purposes of the final rule, new 
numbers for CY 2014 have been compiled. Those new numbers will cover 
only those applications that have been processed with a final 
determination, as opposed to all applications received regardless of a 
final determination.
    The Department did not prepare an analytical impact statement 
concerning non-legal entities as the definition of ``Person'' in 
section 479.11 does not use the term. Applicants who submit Forms 1, 4, 
and 5 are identified as trusts, legal entities, governmental entities, 
FFLs and individuals. Further, as some commenters noted, the NPRM did 
not reflect any increase or decrease in the number of individuals 
(natural persons), government entities, or FFLs who submitted Form 1, 
4, or 5 applications for CY 2000 or 2009 because the NPRM in part was a 
response to inquiries on legal entities as identified in the petition 
from NFATCA. The NPRM in Table A does reflect a breakdown of the type 
of forms received by corresponding categories in order to compare the 
costs to those applicants who are currently required to submit 
fingerprints, photographs, and CLEO certifications with the costs 
reflected in the final rule that will require each responsible persons 
of a trust or legal entity to submit the same personal information to 
ATF before a trust or legal entity is allowed to make or have 
transferred to it an NFA firearm.
    Some comments noted a possible discrepancy between ATF's 2013 
Statistical Update and Table A of the 2012 NPRM. The difference appears 
to be attributable to the fact that the NPRM counted the number of 
applications received in CY 2012, whereas the Statistical Update 
counted the number of firearms processed in CY 2012. ATF processed 
fewer Forms 1 and 4 than it received in CY 2012, which is why there are 
fewer firearms processed than applications received in those 
categories. The 170,561 number used in relation to Form 5 in ATF's 2013 
Statistical Update reflects the total number of firearms processed on 
Form 5 applications for CY 2012 from all applicants to make or transfer 
firearms, i.e., trusts, individuals, government entities, etc. The 
total does not reflect an actual number of separate and distinct legal 
entities or ``non-legal entities''; however, the NFRTR contains each 
registered NFA firearm by serial number. As an example, the NFA Branch 
may receive one Form 5 from a transferor (FFL) to transfer 20-40 NFA 
firearms at one time to a large governmental entity, i.e., a police 
department, at one time. Each individual firearm that is transferred is 
counted. See section VI.A.2 for additional details about the numbers of 
persons who submit ATF Forms 1, 4, and 5.
c. Alternative Approach to Legal Entities
Comments Received
    Several commenters stated that ATF's ``one-size-fits-all solution'' 
failed to consider that trusts and legal entities vary widely and 
differ in purposes and structure. These commenters asserted that ATF 
should engage in a proactive assessment of each trust and legal entity, 
first reviewing the

[[Page 2687]]

documentation establishing each trust or legal entity and determine 
whether the creators and operators of a particular trust or legal 
entity have taken appropriate safeguards to prevent prohibited persons 
from using the trust or legal entity to acquire NFA firearms. If ATF 
finds that the particular trust or legal entity did not take 
appropriate safeguards, only then should ATF subject that trust or 
legal entity to additional scrutiny and impose default requirements 
such as ``specially designed provisions addressing firearms issues.''
    Another commenter recommended excluding specific trust roles from 
the ``responsible person'' definition, including successor trustees, 
beneficiaries, and contingent beneficiaries and that successor trustees 
should be expressly excluded until they become a trustee. Another 
commenter described the types of individuals who are generally trust 
beneficiaries (e.g., children), which, although not specifically stated 
by the commenter, leads one to the conclusion that beneficiaries should 
not be deemed responsible persons.
    Some commenters recommended exemptions or clarifications for trust 
members and executors. For instance, a commenter suggested exempting 
members of the trust that are related by lawful marriage and adoption, 
and through the commonplace definitions of family. Another commenter 
suggested that if ATF removes the option for a trust that ATF ``amend 
the classification of individual to include immediate family'' as he 
would ``love to pass down [his] NFA items to [his] children.'' Another 
commenter suggested clarifying wording to allow the executor or an 
estate temporary possession and that would not be considered a 
transfer, which according to the commenter is much needed for those 
with trusts.
    Another commenter suggested requiring that trust members include 
their Social Security numbers when submitting a Form 1 or Form 4. In 
addition, when a new member is added to a trust, the trust must include 
that new member's Social Security number when a new Form 1 or Form 4 is 
submitted.
    Another commenter believes that only the main person in the trust 
should be held responsible for the others named in the trust. This same 
commenter also supported doing a background check on the main person in 
the trust when the trust is formed but was against having to recheck 
background checks every single time they get an NFA item. Another 
commenter suggested only requiring photographs and fingerprints for the 
settlor/grantor of the trust. This commenter stated that the settlor/
grantor is the person who completes the Form 4473, undergoes the 
background check at the time of transfer, and is ultimately responsible 
for how the trust items are disposed of and used.
    A few commenters suggested other alternative processes for legal 
entities. A commenter suggested that ATF automate Form 1 and Form 4 
transactions to tie them into the Form 4473 background check process, 
and that all listed trustees or legal entities be included in this 
process. Another commenter suggested that if the issue is with trusts 
and having all trust members submit their information to ATF, that ATF 
create a new FFL classification and follow the ``well established and 
functioning process'' of the FFL system. Another commenter suggested 
that ATF could achieve its goals through establishing an NFA equivalent 
of U.S. Customs and Border Protection's Global Entry System. Such a 
system would enable ATF to perform a ``single extensive'' background 
check on each trust member and would simplify background checks for 
future trust purchases.
    Another commenter suggested that ATF allow corporations or trusts 
to file the necessary information separately, and not be included in 
the Form 1 or Form 4 submission. The legal entity could then 
electronically file (e-file) the tax stamp request. Another commenter 
suggested that, for any NFA item that a trust or legal entity 
purchases, the transaction include either a NICS check or the 
presentation of a State-issued carry permit to complete a Form 4473.
    Another commenter recommended that for trust applications, ATF 
accept the Affidavit of Trust instead of requiring the full trust 
document be submitted. This commenter contended that the full trust 
document is not relevant for firearm approval, and would lessen the 
paperwork for the applicant and improve the processing times and reduce 
the burden for ATF. Another commenter asked that ATF consider requiring 
members of trusts to be issued a license similar to the process for a 
concealed carry weapon license.
    Another commenter suggested that ATF permit trusts, partnerships, 
and other corporate entities to transfer any NFA items to an individual 
on a tax-free basis for a one year period.
Department Response
    The Department is aware that there are differences in purpose and 
structure among various trusts and legal entities; these differences, 
however, do not provide an appropriate basis to apply different 
standards when applying the provisions of the NFA.
    The Department rejects the suggestion that it review the 
documentation establishing each trust or legal entity and determine 
whether the creators and operators of that trust or legal entity took 
appropriate safeguards to prevent prohibited persons from using the 
trust or legal entity to acquire NFA firearms. The Department believes 
that it is more efficient and effective to ensure, at a minimum, that 
all trusts and legal entities do not have any responsible persons who 
are prohibited from possessing NFA firearms. The Department believes 
that it is the responsibility of those trusts and legal entities to 
take all other appropriate measures to ensure that they comply with 
State and Federal law. Additionally, requiring that the Department 
determine whether trusts and legal entities had sufficient safeguards 
in place to prevent NFA firearms from coming into the possession of 
prohibited persons would be costly and time consuming.
    The Department does not agree with the suggestion that it should 
require only the acting trustee to submit fingerprints and photographs 
and receive a CLEO signature. Depending on the terms of the trust, 
additional people beyond the acting trustee may have the power and 
authority, directly or indirectly, to direct the management and 
policies of the entity insofar as they pertain to firearms.
    The Department also does not agree with performing the background 
check at the time of the NFA transfer, as this would necessarily take 
place after the application is approved. Such a process is not 
consistent with the statutory requirements of section 5812(a) 
(providing that applications shall be denied if the transfer, receipt, 
or possession of the firearm would place the transferee in violation of 
the law) and section 5822 (providing that applications shall be denied 
if the making or possession of the firearm would place the person 
making the firearm in violation of law). Prior to approving the 
application, ATF must verify that the person is not prohibited from 
making, receiving, or possessing the firearm. This cannot be 
accomplished by having the FFL conduct the background check at the time 
of the transfer. See section IV.C.4 for responses relating to the 
definition of ``responsible persons.''
    The Department rejects the suggestion that it exempt family members 
from the definition of ``responsible persons'' as these are the 
individuals most likely to be named as grantors, trustees, or

[[Page 2688]]

beneficiaries in the trust, and family members may be prohibited 
persons. However, the Department agrees that certain individuals 
associated with trusts should not generally be considered responsible 
persons, including beneficiaries. As previously stated, the final rule 
includes an amended definition of responsible person to make clear that 
beneficiaries and certain other individuals typically fall outside the 
definition.
    The Department has chosen not to require Social Security numbers on 
the Form 5320.23 for responsible persons, nor on Forms 1, 4, and 5. The 
Department believes such information is not necessary to be included on 
these forms because the information is already requested on the FBI 
Form FD-258 (fingerprint card) used for conducting the necessary 
background checks.
    The Department rejects the suggestion that it only require the 
Affidavit of Trust to verify that an applicant is a genuine trust. That 
document does not contain all the information necessary to verify that 
it is a valid trust and may not contain all the information necessary 
to verify who is a responsible person for the trust.
    Regarding alternate means of conducting background checks, the 
Department believes that using NICS in conjunction with a fingerprint-
based background check provides the best option. The NICS has access to 
several Federal databases that contain information relevant to 
determining whether a person is prohibited from possessing a firearm, 
and since its inception has identified over two million prohibited 
persons attempting to purchase firearms and denied transfers to those 
individuals. Additionally, the fingerprint-based background check may 
identify a disqualifying criminal record under another name.
    The transfer tax is fixed by statute, see 26 U.S.C. 5811(a), and 
ATF does not have the authority to waive transfer taxes except in very 
limited circumstances not applicable to the types of transfers 
commenters wish to see exempted.
4. Definition of ``Responsible Person''
a. Ambiguous and Poorly Reasoned Definition
i. Definition Is Overly Broad and Includes, by Title, Many Individuals 
Associated With Trusts and Legal Entities That May Have No Power or 
Authority
Comments Received
    A few commenters stated that the interpretation of the definition 
of responsible person could mean that any person who has possession of 
a firearm could be required to get CLEO certification. The commenters 
also stated that ``nowhere in the law is every member of an 
organization held accountable for every action of the organization.'' A 
few other commenters stated that every employee of an FFL is not 
required to be listed as a responsible person on the license, so there 
is no reason to require everyone associated with a legal entity to be 
designated as a responsible person. Two other commenters stated that by 
requiring fingerprints, photographs, and CLEO signature for each 
responsible person, it increases the burden to both applicants and 
CLEOs, and could become an administrative nightmare. One of the two 
commenters also asked, since ATF anticipates a requirement for 
notification in changes of responsible persons, ``[w]ill trustees be 
aware of such a requirement and practically be able to comply?'' 
Another commenter, an attorney, stated that every corporation has 
shareholders and that extending the definition of responsible person to 
include all shareholders defeats the purpose of the corporation and 
``overrides well developed statutory case law relating to corporate 
governance and property ownership rights.'' The commenter also stated 
that the proposed rule eliminates the advantages of corporations and 
their ability to exercise their right to own property. Another 
commenter asked whether beneficiaries who are under the age of 21 years 
old, who may live in different States, and who do not have any 
authority to possess, transport, or acquire NFA firearms, would be 
required to obtain photographs, fingerprints, and the CLEO signature. 
Another commenter, a licensed NFA dealer, stated that given the broad 
definition of responsible person as related to trusts, and the possible 
criminal consequence of non-compliance, entities have no choice but to 
err on the side of over-inclusion, which places a burden on both the 
entity and ATF. The commenter suggested that there might be hundreds or 
thousands of responsible persons for a single entity, and gave the 
example of a corporation with headquarters in Maryland with over 4000 
employees located in 38 States. A few commenters, including a licensed 
manufacturer, stated that the definition is too broad and exceeds both 
what is reasonable and the definition of responsible person currently 
used for FFLs.
    Other commenters noted that the definition for responsible person 
appears to extend to beneficiaries of a trust holding NFA firearms, and 
even to successor trustees, remainder beneficiaries, and trust 
protectors. The commenter noted, however, that in a typical trust 
document, the trustee is the only person with legal title to any items 
in such a trust, and that the ``beneficial interest'' of the 
beneficiary does not vest until the time specified in the trust.
    Another commenter stated that the proposed definition for 
responsible person exceeds the definition of responsible person used 
for handling explosives. This commenter asked if ATF intended to extend 
the CLEO's ``veto'' to explosives workers. Another commenter stated 
that the proposed definition was very vague on which ``entity'' could 
decide who would be a responsible person. This commenter expressed 
concern that any government agency could be capable of making that 
decision. Another commenter recognized the need to define responsible 
person; however, this commenter expressed concern that if the 
government alone defined the term that it might allow them more power 
over which persons could exercise their right to bear arms.
Department Response
    The Department has reviewed the definition in the proposed rule and 
amended it to address concerns about its breadth while maintaining the 
important objective of ensuring background checks for relevant parties 
associated with a trust or legal entity. As in the definition of 
``responsible person'' in the NPRM, the definition of ``responsible 
person'' in this final rule applies to those who possess the power or 
authority to direct the management and policies of an entity insofar as 
they pertain to firearms. This addresses commenters' concerns that 
shareholders and others who are associated with an entity are not 
always in a position to possess the entity's firearms. It should be 
noted that if an individual has the power or authority to direct the 
management and policies for a legal entity, that individual would fall 
within the definition of ``responsible person.'' Trusts differ from 
legal entities in that those possessing the trust property--trustees--
are also the individuals who possess the power and authority to direct 
the management and policies of the trust insofar as they pertain to 
trust property, including firearms.\9\ As it applies to trusts, the 
definition of ``responsible person'' in this final rule

[[Page 2689]]

serves the dual purpose of requiring these individuals to undergo 
background checks while also addressing the commenters' concerns about 
unnecessarily requiring background checks of individuals who would not, 
or could not, possess the firearms. Depending on how the trust is set 
up, the identity of trust beneficiaries may remain uncertain for a 
period of time or may include individuals who will not possess the 
firearms. Therefore, the Department believes that it is not necessary 
to positively identify a beneficiary as a ``responsible person'' within 
the definition.\10\ However, under the amended definition, 
beneficiaries and other individuals will be considered responsible 
persons if they meet the criteria for designation as responsible 
persons because of their capacity to control the management or 
disposition of a relevant firearm on behalf of a trust or legal entity.
---------------------------------------------------------------------------

    \9\ Restatement (Third) of Trusts Sec.  3 (2003) (defining 
``trustee'' as ``the person who holds property in trust'').
    \10\ See id. (defining beneficiary as ``a person for whose 
benefit property is held in trust'').
---------------------------------------------------------------------------

    The Department believes that the definition of ``responsible 
person'' in this final rule appropriately addresses concerns that the 
necessary individuals receive background checks before receiving NFA 
firearms, and that the potentially large number of individuals who are 
merely associated with the trust or legal entity, but will not possess 
firearms, are not required to submit applications. Further, the 
Department notes that under 18 U.S.C. 922(g), it remains unlawful for a 
prohibited person to possess firearms. Similarly, under section 922(d) 
it remains unlawful for any person to sell or deliver a firearm to any 
prohibited person if that person knows or has reasonable cause to 
believe the person is prohibited. For responses to comments on CLEO 
certification see section IV.C.1. As noted previously, ATF Forms 1, 4, 
and 5 will be updated to reflect the definition of responsible persons 
in the final rule.
    The Department does not agree that including shareholders in the 
definition of ``responsible person'' defeats the purpose of a 
corporation, as a shareholder will only be a responsible person if the 
shareholder possesses, directly or indirectly, the power or authority 
to direct the management and policies of the entity insofar as they 
pertain to firearms.
ii. Beneficiaries Are Often Minors or Not Yet Born, Presenting a 
Challenge to Proposal That Beneficiaries Submit Fingerprints, 
Photographs and a CLEO Certification
Comments Received
    Many commenters stated in a form letter that the proposed rule 
interferes with the lawful use of trusts for estate planning. These 
same commenters stated that the overly broad definition of a 
responsible person means contemplating the ``absurd possibility of 
fingerprinting, photographing, and securing CLEO sign-offs for unborn 
children.'' Another commenter, who holds a trust, stated that the 
proposed rule places a hardship on his family and trust by possibly 
requiring fingerprints of his elderly grandmother and his two-year-old 
and five-year-old children. Another commenter, a trust holder, asked 
how the definition of responsible persons applies to minor 
beneficiaries in a trust, and asked if ATF is proposing the 
fingerprinting and photographing of minor children who lawfully cannot 
possess a firearm. Other commenters also asked about the need for CLEO 
certification, as well as fingerprints and photographs, for children 
and minors. At least one commenter specifically argued that his CLEO 
would not provide a certification for beneficiaries. Many commenters 
questioned the practicality of requiring fingerprints and photographs 
for minors, and wondered how this would be done, in particular on 
babies and young children. Many commenters stated that a background 
check for beneficiaries is more appropriately conducted at the time an 
item in the NFA trust is actually transferred to them from the trust. 
Another commenter questioned whether doing a background check on a 
minor beneficiary would have any benefit, and asked if a background 
check would show the chances of committing a felony or domestic 
violence in the future. Another commenter asked if the requirements for 
photographs, fingerprints, and CLEO certification do not apply to 
minors, would the minor upon turning 18 need to submit these required 
items?
Department Response
    As noted, the Department agrees that beneficiaries should not 
generally be included in the definition of responsible person. The 
definition of responsible person has been amended and no longer 
includes beneficiaries as a typical example of a ``responsible 
person.''
iii. Challenge in Determining Who Qualifies as a Responsible Person
Comments Received
    Many commenters, most of whom have trusts, and an FFL, noted in a 
form letter that the Department's definition of responsible persons is 
different for different types of entities. They stated that based on 
the Department's general definition of a responsible person, and the 
complexity of trust laws, they would need to speak to a lawyer to 
determine who in their trust would be considered a responsible person. 
Ninety-eight of the same commenters, all of whom have trusts, also 
stated that their trust includes beneficiaries who are under 18 years 
old and that they would need to speak to a lawyer to get a clear answer 
about whether they fall under the responsible person definition.
    Other commenters asked various questions concerning companies that 
own NFA firearms and how they are to determine who counts as 
responsible persons. A commenter asked if such companies would have to 
``photograph, fingerprint, and complete a favorable background check'' 
on each individual before accepting that individual as an employee or 
partner. This commenter also asked if a stockholder would be viewed as 
having ownership of the corporate assets such that they would need to 
be fingerprinted. Another commenter stated that the proposed rule left 
many unanswered questions concerning its definition of a responsible 
person, including whether and when minor trust beneficiaries would 
qualify.
Department Response
    The final rule incorporates a new definition of ``responsible 
person'' that addresses many of the questions and concerns raised by 
these comments, including the concerns about trust beneficiaries who 
are minors. That said, the Department agrees that in some cases persons 
may need to seek legal counsel to determine who is a responsible person 
for purposes of this rule. The Department notes, however, that many of 
the trust applications it currently reviews were prepared with the 
advice or assistance of a lawyer. As a result, it is not clear whether 
the overall need for legal counsel will increase or decrease because of 
this rule. The Department anticipates, for example, that persons who 
have used a trust in the past to avoid the CLEO certification 
requirement may well choose to acquire future NFA firearms as 
individuals once the CLEO certification requirement has been modified 
to a notification requirement,

[[Page 2690]]

thereby diminishing the overall need for legal counsel among makers and 
transferees.
b. Proof of Citizenship for Responsible Persons
Comments Received
    Several hundred commenters objected to the proposed requirement 
that any responsible person of a legal entity prove citizenship as part 
of submitting an application to transfer or possess NFA items. The 
bases for this objection varied from an ideological opposition to ever 
having to prove citizenship to an observation that not all aliens are 
prohibited from possessing firearms under Federal law. Other commenters 
approved of the requirement to demonstrate citizenship, even though 
they were otherwise opposed to the rule.
Department Response
    Under Federal law (18 U.S.C. 922(g)(5)(B)) it is generally unlawful 
for any alien admitted to the United States under a nonimmigrant visa 
to ship or transport in interstate or foreign commerce, or possess in 
or affecting commerce, any firearm or ammunition, or to receive any 
firearm or ammunition that has been shipped or transported in 
interstate or foreign commerce. This prohibition extends to NFA 
firearms. Federal law (18 U.S.C. 922(y)(2)) also provides certain 
exceptions to this prohibition. As a result, before ATF can approve an 
NFA registration request it must determine if the applicant or 
transferee is a U.S. citizen, and if the applicant or transferee is not 
a citizen, whether the applicant or transferee falls within the 
prohibition or exceptions described above. This requirement is not 
unique to NFA transfers. For example, the ATF Form 4473 requires the 
transferee or buyer to respond to questions to determine if the 
transferee or buyer is an alien admitted under a nonimmigrant visa, and 
if so, whether the transferee or buyer qualifies for an exception to 
the section 922(g)(5)(B) prohibition. On the ATF Form 7 (5310.12), 
Application for Federal Firearms License, the applicant is required to 
provide the applicant's country of citizenship and nonimmigrant aliens 
are required to certify compliance with 18 U.S.C. 922(g)(5)(B). This 
rule simply applies the same requirement to NFA registration documents 
in order to assure compliance with Federal law.
c. General Applicability Questions
Comments Received
    Many commenters stated that the proposed rule gave rise to many 
unanswered questions, especially about the operation of the CLEO 
certification requirement in jurisdictions where CLEOs were reluctant 
or refused to provide the certification, regardless of the applicant's 
background. Another commenter asked how the rule would apply when, 
following the transfer, some or all of the responsible persons are 
replaced, and whether the answer would be different based upon the type 
of legal entity involved.
Department Response
    As indicated in section IV.C.1 the Department has replaced the CLEO 
certification requirement with a CLEO notification requirement. This 
change renders moot many of the hypothetical questions submitted by 
commenters, including those that focus on jurisdictions in which 
obtaining CLEO certification is hindered for ``political'' reasons.
    With respect to issues raised by the prospect of a post-transfer 
change in responsible parties, this rule does not require that ATF be 
notified of such changes. In the NPRM, the Department indicated that it 
was considering a requirement that new responsible persons submit Form 
5320.23 within 30 days of a change in responsible persons at a trust or 
legal entity. After receiving several public comments on this issue, 
the Department is not requiring in this final rule that new responsible 
persons submit a Form 5320.23 within 30 days of any change in 
responsible persons.
d. Alternatives to Definition
Comments Received
    A number of commenters took issue with the proposed definition of 
``responsible person.'' Some found it vague and overly broad. Others 
argued for a more finite definition, with some suggesting specific 
alternative definitions. Quite a few argued that, depending on the 
nature of the trust or legal entity, and the roles performed by persons 
associated with the trust or legal entity, ATF should permit 
designation of a sole or primary responsible person, thereby minimizing 
the burden associated with processing the application.
Department Response
    The Department acknowledges that whether an individual meets the 
definition of a responsible person will depend on the structure of the 
trust or legal entity acquiring the firearm and who within that 
structure has the power and authority to direct the management or 
policy of the trust or legal entity pertaining to firearms. The final 
rule provides guidance to persons seeking to acquire an NFA firearm for 
a trust or legal entity about who qualifies as a responsible person 
under most routine circumstances. For example, under the terms of a 
trust, if a minor child does not have the power and authority to direct 
the management and policy of the trust, and is not authorized under any 
trust instrument, or under State law, to receive, possess, ship, 
transport, deliver, transfer, or otherwise dispose of a firearm for, or 
on behalf of, the trust, the minor child would not meet the definition 
of a responsible person. Additionally, beneficiaries do not appear in 
the non-exclusive list of possible ``responsible persons'' in the 
definition and will not be considered responsible persons unless they 
meet the definition set out in the final rule.
    The Department agrees that trusts and legal entities may have 
complex structures. However it is the responsibility of each trust, 
association, partnership, LLC, or corporation to determine which 
individuals within its structure are responsible persons under this 
rule. The Department does not agree with comments limiting the 
responsible person to only one individual per trust or legal entity 
because multiple individuals may have the power and authority to make 
decisions for the trust or legal entity, or otherwise meet the 
definition of ``responsible person.'' This includes co-trustees, 
members of the board of directors, or controlling members of an LLC.
    The Department has amended the originally proposed definition of 
``responsible person,'' see supra section IV.C.4.a, and the Department 
believes those revisions provide the clarity that many of the 
commenters requested, albeit without accepting some of their specific 
suggestions.
    The Department further believes that it is the duty of individuals 
having the power or authority to direct the management and policies of 
the trust or legal entity to ensure that prohibited persons do not have 
access to firearms.

D. Comments on Proposed Rule's Statutory and Executive Order Reviews

1. Executive Order 12866
    Several commenters argued that the proposed rule violated or failed 
to comply with Executive Order 12866, an order which a few of these 
commenters noted was ``revived by'' Executive Order 13497. In general, 
these commenters took issue with ATF's cost-benefit

[[Page 2691]]

analysis of the rule, finding that analysis to be lacking for a host of 
reasons including that ATF (1) failed to identify the existence of a 
problem the proposed rule was intended to solve; (2) failed to credibly 
assess costs and benefits of the proposed rule or consider more cost 
effective alternatives; (3) failed to properly estimate the full 
economic costs; (4) failed to properly weigh those costs against the 
expected benefits; (5) relied upon ``spurious and anecdotal incidents'' 
and ``speculative logic'' to justify the proposed rule; and, (6) by 
failing to conduct a proper cost-benefit analysis, improperly 
considered the rule not to be a significant regulatory action. Several 
commenters requested that ATF conduct an ``in-depth,'' ``detailed'' 
financial impact study to assess the rule's costs and ``actual, 
tangible benefits.''
    In addition, a few commenters argued that, in particular, the 
rule's extension of the CLEO certification requirement violated 
sections 1(b)(9) and (11) of Executive Order 12866 by failing to adopt 
the least burdensome effective alternative.
    A commenter supported the estimates in the proposed rule, and 
concluded that the public safety benefits--expanding background checks 
to legal entities and ensuring fewer firearms would be possessed by 
prohibited persons--were ``massive'' and far outweighed any minor 
monetary or time costs to potential makers or acquirers of NFA 
firearms.
    Another commenter stated that the proposed regulations extending 
the CLEO certification requirements would increase the processing 
workload for the NFA Branch by nine times, and that this would further 
add to the NFA Branch's backlog of one year. The commenter thus 
concluded that wait times would approach a decade.
Department Response
    The Department believes it has thoroughly considered the costs and 
benefits of the rule. Commenters have not provided the Department with 
data or information that would alter or refine the Department's 
estimates of the rule's costs and benefits. The Department has done its 
best to consider all relevant costs and benefits traceable to the rule, 
including, among other things, the benefits to public safety that will 
stem from the rule; the increased operational cost for the Government 
and industry members; the increased cost associated with additional 
fingerprint cards and photographs for responsible persons; and the 
increased labor cost associated with the time it takes for applicants 
and industry members to complete the required forms. Having considered 
all of the reasonably foreseeable costs and benefits, the Department 
has determined that the benefits of ensuring NFA weapons are less 
easily obtained by persons prohibited from possessing them outweighs 
the cost of implementing the rule.
    The Department acknowledges the commenters' concerns with the 
Department's assessment of costs and benefits of the proposed rule in 
the NPRM. The final rule reflects that after careful consideration of 
all comments, the Department has elected to eliminate the CLEO 
certification and replace it with a CLEO notification that will lessen 
the burden to CLEOs and applicants for registration. See section IV.C.1 
for the in-depth discussion of the Department's decision to adopt a 
CLEO notification requirement in lieu of CLEO certification.
    This final rule also identifies important benefits to public safety 
and security that will be achieved by the rule. For example, by 
conducting background checks on persons who meet the new definition of 
a ``responsible person,'' ATF will be better able to ensure that 
responsible persons within trusts and legal entities are not prohibited 
from possessing NFA firearms. Presently, only individuals are required 
to submit fingerprint cards and undergo background checks to ensure 
that they are allowed to possess and receive an NFA firearm.
    Further, the CLEO notification will ensure that CLEOs are aware of 
NFA firearm acquisitions in their jurisdictions and have an opportunity 
to provide input to ATF, but will reduce costs because they will no 
longer be responsible for signing certifications or conducting 
background checks for individual applicants. This final rule will 
require all applicants and responsible persons within trusts and legal 
entities to notify their local CLEO by either forwarding a completed 
copy of Form 1, 4, or 5, or a completed copy of Form 5320.23, if 
applicable. ATF estimates that the time for a CLEO to review the 
notification is 15 minutes per applicant/responsible person. Because 
not all responsible persons within a trust or legal entity may live in 
the same location as the applicant trust or legal entity, a different 
CLEO may review the ATF Form 1, 4, or 5 from the CLEO that reviews a 
Form 5320.23 for each responsible person. However, if a CLEO determines 
that there is any reason why an applicant or transferee should not have 
an NFA firearm, the CLEO should notify ATF. While there will be 
additional costs to ATF, the Department has determined that the 
benefits will significantly outweigh any costs.
    The NPRM identified a few instances when a prohibited person nearly 
erroneously acquired an NFA firearm; however, the transaction did not 
occur because the responsible person within the particular trust or 
legal entity had undergone a background check. Those examples show that 
there is a tangible risk of a prohibited person acquiring an NFA 
firearm through a trust or legal entity. The Department has not relied 
on those instances to conclude that there are presently a large number 
of erroneous transfers. However, the fact that some individuals have 
been prevented from obtaining firearms supports the Department's 
position that a risk exists that should be addressed.
    The Department stands by its determination that this rule will 
neither have a significant annual effect on the economy of $100 million 
or more, nor adversely affect in a material way the economy, a sector 
of the economy, productivity, competition, jobs, the environment, 
public health or safety, or State, local, or tribal governments or 
communities.
    The Department recognizes that the final rule will affect 
processing times and is implementing processes to keep the impact to a 
minimum.
2. Executive Order 13132
    A commenter quoted text that ATF used in section IV.B of the NPRM 
(78 FR at 55023), from which the Attorney General concluded that the 
NRPM did not have sufficient federalism implications to warrant ATF's 
preparing a federalism summary impact statement, and accordingly 
complied with section 6 of Executive Order 13132 (Federalism). This 
commenter noted that ATF acknowledged that the proposed expansion of 
the CLEO certification requirement to all responsible persons of a 
legal entity had the potential for increased utilization of State and 
local agencies' resources for processing CLEO certifications. This 
commenter questioned ATF's statement that such utilization would be 
``voluntary'' and was ``expected to be minimal.'' This commenter stated 
ATF needs to further clarify this ``voluntary'' utilization, and 
perform proper cost-benefit analyses to clarify its ``claim'' of 
minimal impact, or else abandon its proposal to extend the CLEO 
certification requirement to responsible persons of a legal entity.
Department Response
    After considering the objections of numerous commenters concerning 
the extension of the CLEO certification

[[Page 2692]]

requirement to trusts and legal entities, the Department has decided 
not to expand the CLEO certification requirement to include responsible 
persons of trusts and legal entities. Instead, the Department has 
elected to remove the CLEO certification requirement entirely--for both 
responsible persons and individuals--and adopt CLEO notification in its 
place. This decision will lessen the burden on State and local 
agencies' resources in preparation and review of applications for 
responsible persons and individuals. Regardless of whether the rule 
might have required a federalism summary impact statement before, the 
decision to eliminate the CLEO certification requirement means that 
there is no need for one now. Because CLEOs will continue to be 
informed about the NFA firearms present within their jurisdictions, the 
Department also believes that this change will not materially degrade 
public safety.
    The Department continues to maintain that the proposed rule did not 
have sufficient federalism implications to warrant a federalism summary 
impact statement. The Department noted in the proposed rule that the 
impact on resources used by State and local agencies would be 
``voluntary'' and was ``expected to be minimal.'' As many commenters 
have observed, CLEOs voluntarily decide to sign or not to sign off on 
any particular application, and would have continued to be able to do 
so under the proposed rule.
3. Regulatory Flexibility Act
    Numerous commenters stated that ATF did not comply with the 
Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612. According to most 
of these commenters, there was no indication in the proposed rule that 
ATF adequately considered the needs of small businesses and the costs 
that were likely to be associated with the rule, especially the costs 
imposed on small businesses directly and indirectly associated with the 
manufacture, distribution, purchase, and use of NFA firearms. Numerous 
commenters suggested that the proposed rule would dramatically increase 
the cost of acquiring NFA firearms, especially silencers. They also 
suggested that the proposed rule would likely force a number of small 
businesses out of business, resulting in job loss and economic turmoil. 
Many of these commenters focused on the proposed requirement that CLEO 
certification be obtained for all acquisitions, regardless of the 
nature of the trust or legal entity, but some also identified the 
burden that would be imposed by requiring responsible persons for 
trusts and legal entities to have background checks run as part of the 
acquisition process. In addition, many commenters argued that ATF's 
estimated increased costs to legal entities were too low, as ATF 
estimated the number of responsible persons as two, a figure commenters 
regarded as an underestimate. Further, a commenter requested that ATF 
clarify the research and methodology it used to determine that the 
proposed rule complied with the RFA and perform further research, 
analyses, and clarification before implementing the final rule.
    A few commenters explained that under the RFA and (as amended by) 
SBREFA, when ``promulgating a rule, an agency must perform an analysis 
of the impact of the rule on small businesses, or certify, with 
support, that the regulation will not have a significant economic 
impact on them.'' Nat'l Mining Assoc. v. Mine Safety and Health Admin., 
512 F.3d 696, 701 (D.C. Cir. 2008). According to these commenters, the 
regulatory flexibility analysis must ``describe the impact of the 
proposed rule on small entities'' and, among other things, must contain 
(1) ``a description of the reasons why action by the agency is being 
considered;'' (2) ``a succinct statement of the objectives of, and 
legal basis for, the proposed rule;'' (3) ``a description of and, where 
feasible, an estimate of the number of small entities to which the 
proposed rule will apply;'' and (4) ``identification, to the extent 
practicable, of all relevant Federal rules which may duplicate, overlap 
or conflict with the proposed rule.'' 5 U.S.C. 603. The commenters 
continued that the ``analysis must also include discussion of 
alternatives to the proposed rule,'' and, although an agency head may 
certify that the rule will not ``have a significant economic impact on 
a substantial number of small entities,'' such certification must be 
supported by ``a statement providing the factual basis for such 
certification.'' 5 U.S.C. 605. Using this legal framework, these 
commenters argued that ATF did not follow its obligations under the 
RFA.
    Another commenter stated that ATF should clarify the research and 
methodology it used to determine that the NPRM complied with RFA, and 
that further research, analyses, and clarification is required 
regarding the proposed rule's economic impact. Another commenter 
disagreed with ATF's estimated cost increase per legal entity being 
only $293.93, and believed this was far too low. The commenter 
attributed that result to ATF underestimating the average number of 
responsible persons as two.
Department Response
    The Department believes it has thoroughly considered whether the 
rule will have a significant impact on small businesses and has 
reasonably concluded that it will not have such an impact. Commenters 
have pointed to no flaws in the Department's analysis that would call 
into question the reasonableness of its conclusion that the rule will 
minimally impact small businesses. Commenters have identified only two 
specific issues with the Department's analysis--namely, (1) that the 
Department underestimated the average number of responsible persons for 
trusts and legal entities, and (2) that the Department failed to 
consider potential secondary market impacts on small businesses that 
sell NFA firearms to trusts and legal entities covered by the rule. As 
to the first objection, the Department disagrees that its estimate of 
two responsible persons per entity was unreasonable. As to the second, 
the Department believes that any secondary market impacts will be 
negligible. The Department thus rejects the suggestion that it failed 
to give careful consideration to the full effect the proposed rule 
would have had on small businesses. In any event, this final rule has 
been revised to eliminate or ameliorate many of the concerns reflected 
in the comments about the RFA, and the rule remains fully compliant 
with that Act.
    This final rule primarily affects trusts and legal entities that 
seek to make or acquire NFA firearms and are not making or acquiring 
them as qualified FFLs. The Department believes that the increased cost 
of implementing the regulations will not be significant on trusts or 
legal entities. ATF has estimated that the cost of implementing the 
regulation will increase the cost for 115,829 trusts and legal entities 
with an average of two responsible persons by $25,333,317 
(identification costs for background checks: $23,846,679; CLEO 
notification costs: $1,487,244) per year.\11\ Accordingly, the 
estimated cost increase per trust or legal entity is $218.71 (cost of 
increase ($25,333,317) / number of trusts and legal entities 
(115,829)).
---------------------------------------------------------------------------

    \11\ This total does not include the cost of agency processing 
time for notification, but is instead based upon the costs to 
entities for notification. Based on 115,829 trusts and legal 
entities, the notification cost is $1,487,244 ($5,330,450 less 
$3,843,206).
---------------------------------------------------------------------------

    In reaching this estimate the Department was quite specific in the 
proposed rule in allowing 10 minutes for each responsible person to 
complete Form 5320.23 and considered this a reasonable amount of time 
for

[[Page 2693]]

responsible persons at any business, large or small, to allocate for 
compliance with regulatory requirements. However, after further 
consideration, the Department has adjusted this time estimate to 15 
minutes. See section IV.E.1.f for additional discussion. Similarly, ATF 
projected that it would take only 50 minutes to procure needed 
photographs--a generous allocation considering the range of photo-
taking technology available in this era of mobile and virtual 
technologies. See also section IV.C.1 for details concerning the shift 
from CLEO certification requirements to CLEO notification requirements.
    By developing Table B(1)--Cost Estimates of the Time to Comply with 
the Proposed Rule's Requirements and Table B(2)--Cost Estimates of 
Procuring Photographs, Fingerprints, and Documentation, the Department 
complied with the requirement that it analyze the impact of the rule on 
small businesses and documented the anticipated effect of the 
regulation.
    In section IV.A.2 of the proposed rule, ATF reported that ``[i]n 
calendar year (CY) 2012, ATF received 84,435 applications that were 
either ATF Forms 1, 4, or 5. Of these, 40,700 applications were for 
unlicensed trusts or legal entities (e.g., corporations, companies) to 
make or receive an NFA firearm; 29,448 were for individuals to make or 
receive an NFA firearm; and 14,287 were for government agencies or 
qualified Federal firearms licensees (Gov/FFLs) to make or receive an 
NFA firearm.'' 78 FR at 55020-21. This data taken from actual 
applications received provided accurate data as to the number of trusts 
and legal entities to which the rule applies. Further, the Department 
believes that an average of two responsible persons per trust or legal 
entity is appropriate, especially in light of modifications to the 
responsible person definition in the final rule. See infra section 
IV.E.1.a. As explained there, ATF's estimate that each trust or legal 
entity has an average of two responsible persons is based on ATF's 
review of 454 randomly selected applications for corporations, LLCs, 
and trusts processed during CY 2014.
    The Department disagrees with the comments indicating that the 
proposed rule would impose substantial recordkeeping obligations and 
increase the costs to ensure regulatory compliance, thereby resulting 
in small businesses being driven from the field. This final rule 
incorporates information required on ATF Form 5330.20 into the existing 
Forms 1, 4, and 5 that will reduce the burden upon the applicant or 
transferee by eliminating an additional form to be completed and filed. 
The current estimated time to complete the form is 3 minutes. Because 
the information requested on the forms is the same, savings will result 
from the applicant not having to attach a separate form. Further, these 
forms are not kept by the FFL and therefore will result in no increase 
in small business recordkeeping obligations.
    Several commenters argued that ATF's RFA statement considered only 
the NFA purchasers and their estimated additional costs of compliance, 
but ignored the proposed rule's significant effect on manufacturers and 
distributors/sellers, and the fact that business' customers would have 
a difficult time obtaining certification via a CLEO, therefore hurting 
sales. The Department notes again that it has changed the certification 
requirement to a notification requirement. See supra section IV.C.1. 
Further, the Department notes that the rule's primary focus relates to 
those responsible persons who have authority to direct firearms policy. 
The Department believes that because the rule is unlikely to 
significantly burden trusts and legal entities that wish to acquire NFA 
firearms, small businesses that sell or distribute NFA firearms and 
components to such trusts or legal entities will see a negligible or 
non-existent impact on their sales.
    Finally, the Department emphasizes that this rule will primarily 
affect trusts and legal entities that are seeking to make or acquire 
NFA firearms and are not making or acquiring them as qualified FFLs. 
Many commenters have observed that the increased use of trusts during 
the last decade has been in response to increased CLEO refusals to 
provide the certification required for individual NFA acquisition 
applications. If that is true, the Department's revision of that 
requirement can be expected to dramatically decrease the use of trusts 
to acquire NFA firearms in the future, meaning that the rule's impact 
on small businesses may be even less than it estimates. In any event, 
the increased cost of implementing the rule will not be significant on 
trusts or legal entities, even if the number of trusts and legal 
entities remains the same. The Department has estimated that the cost 
of implementing the regulation will increase the cost for 115,829 
entities with an average of 2 responsible persons by $25,333,317 per 
year (identification costs: $23,846,679; notification costs: 
$1,487,244).\12\ Accordingly, the estimated cost increase per trust or 
legal entity is $218.71 (cost of increase ($25,333,317) / number of 
trusts and legal entities (115,829)).
---------------------------------------------------------------------------

    \12\ This increased cost total does not include the cost of 
agency processing time for notification. Based on 115,829 trusts and 
legal entities, the notification cost is $1,487,244 ($5,330,450 less 
$3,843,206).
---------------------------------------------------------------------------

4. Small Business Regulatory Enforcement Fairness Act of 1996
    Although the proposed rule stated that it did not constitute a 
``major rule'' as defined by section 251 of the Small Business 
Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 804, 
several commenters disagreed. In addition, while the proposal stated 
that it would not result in ``an annual effect on the economy of $100 
million or more; a major increase in costs or prices; or significant 
adverse effect on . . . employment . . .,'' 78 FR at 55024, several 
commenters disagreed with these assertions as well. One commenter 
requested that ATF clarify the research and methodology it used to 
determine that the proposed rule complied with SBREFA.
    One commenter asserted that extending the CLEO certification 
requirement to responsible persons of trusts and legal entities would 
effectively destroy the market for NFA firearms because ``99% of `legal 
entity' transfers'' stemmed from the CLEO's refusal to sign an 
individual application. According to the commenter, the proposed rule 
would thus eliminate ``approximately $54 million dollars of tax 
generating commerce,'' with a corresponding impact on jobs, with zero 
value gained in terms of public safety, and, thus would constitute a 
``major rule'' under SBREFA. Other commenters made similar points 
concerning the proposed rule's impact under the assumption that CLEO 
certification would be a larger hindrance to conducting commerce in NFA 
firearms. Several commenters noted that this would also collaterally 
impact the Federal fiscal budget through a decreased payment of the 
Special Occupational Tax. Another commenter proposed that the economic 
impact of the proposed rule would have a ``chilling'' effect on NFA 
items' sales (especially lower-cost sound suppressors) due to the cost 
increase incurred by transferees under the proposed rule.
Department Response
    The Department maintains that it complied with the SBREFA in the 
proposed rule. Nonetheless, for this final rule, the Department has 
reassessed burdens and costs to

[[Page 2694]]

applicants, responsible persons, and CLEOs.
    In preparing this final rule, the Department looked at the 
additional impact on licensed manufacturers, dealers, legal entities, 
applicants, and responsible persons and determined that the changes 
would not exceed a threshold greater than $100 million or more on the 
economy. The impact on small businesses should remain minimal.
    Based upon concerns from commenters that the Department 
underestimated the number of responsible persons in the NPRM, the 
Department revisited the definition of ``responsible person'' and has 
amended it in this final rule. See supra section IV.C.4.a.i. 
Beneficiaries are no longer specified as typical responsible persons in 
the definition, though they may still be required to submit to a 
background check if they otherwise meet the definition of ``responsible 
person.'' ATF has also has reassessed the number of responsible persons 
and the number of pages of supporting documentation per legal entity. 
See section IV.E.1.b for the methodology used. This reassessment 
reflects that the estimated number of responsible persons per trust or 
legal entity application remains at two, and the number of pages for 
the supporting documentation is averaged at 16 pages. See section 
IV.E.1.a and IV.E.1.b. See section VI.A.3 for additional details about 
the cost to State and local entities.
    As discussed in section IV.C.1, the Department is eliminating the 
CLEO certification requirement and implementing a CLEO notification 
requirement; this will lessen the burden to CLEOs. The CLEOs will have 
the discretion and flexibility to review, manage, and maintain this 
information in the manner that they believe is most appropriate to the 
public safety concerns in their respective jurisdictions.
    In addressing commenters' concerns that the CLEO extension 
requirement could force many FFLs out of business, ATF did not assess 
the indirect costs to FFLs, such as manufacturers or dealers, but 
concentrated on the direct costs to applicants, responsible persons and 
CLEOs, who have the greatest investment in the making or transfer 
process. However, as stated, CLEO notification will diminish, if not 
eliminate, the economic impact on small businesses, including FFLs, 
that CLEO certification may have imposed.
5. Unfunded Mandates Reform Act of 1995
    A few commenters expressed concerns that the proposed rule did not 
comply with the Unfunded Mandates Reform Act of 1995 (UMRA), with two 
commenters identifying certain areas that they contended called for 
additional study and justification by ATF to ensure compliance with 
UMRA. One commenter stated that the proposal to extend the CLEO 
certification requirement shifts a ``significant regulatory burden'' 
onto State and local agencies, causing them to have to undertake 
additional expenditures, hire new staff, and engage in additional 
training. This commenter stated that UMRA (2 U.S.C. 1532) requires that 
an analysis be performed to determine whether additional government 
funding is needed for State and local agencies to comply with the 
mandate. Many other commenters questioned or disagreed with ATF's 
statement that the proposed rule did not impose any ``unfunded 
mandates,'' again focusing on the proposal to extend the CLEO 
certification requirement to responsible persons of trusts and legal 
entities, which, they noted, would significantly burden CLEOs and 
divert local law enforcement resources from other criminal justice 
priorities. Numerous commenters referenced the U.S. Supreme Court case, 
Printz v. United States, 521 U.S. 898 (1997), which articulated an 
``anti-commandeering principle'' and held invalid a Federal regulatory 
regime that mandated that CLEOs perform background checks for handgun 
transfers. These commenters stated that the proposed rule effectively 
imposed on CLEOs the burden of conducting background investigations as 
part of a Federal regulatory regime, in violation of Printz. These 
commenters also reiterated their view that ATF's estimate of the costs 
imposed by its proposed rule, especially the costs imposed on CLEOs, 
were too low, both with respect to the time it would take to perform a 
certification and the direct costs associated with the process. For 
example, one commenter calculated that for an average legal entity with 
four responsible persons, certification would involve four hours of 
CLEO time, equating to $123.20 per entity (4 x $30.80 = $123.20). 
Extrapolating further, this commenter calculated that the total costs 
to CLEOs around the country would be at least $5,014,240.
Department Response
    The Department acknowledges commenters' concerns that the proposed 
extension of the CLEO certification would place additional burdens on 
CLEOs for processing and reviewing additional responsible persons' 
forms, and for taking and reviewing fingerprints. The Department, 
however, complied with UMRA in the proposed rule. In any event, for 
this final rule, the Department reexamined the burdens and costs to 
CLEOs.
    In preparing this final rule, the Department based the costs and 
expenditures upon direct costs to State and local agencies, licensees, 
and ATF. While it acknowledges that there may be several indirect costs 
or resources that may be associated with complying with the rule, the 
Department believes that the amount would still not be greater than 
$100 million or more.
    For this final rule, the Department prepared an additional analysis 
of approved applications in response to several comments that it 
provided a ``low estimate'' of the number of responsible persons per 
applicant, and the number of pages of chartering documents at those 
entities, which directly affects the time and resources required by the 
CLEO to review applications. As discussed in section IV.C.1, the 
Department is eliminating the CLEO certification requirement and 
replacing it with a CLEO notification requirement that will 
significantly lessen the burden to CLEOs. The CLEOs will have the 
flexibility and discretion to review and maintain the information they 
obtain as a result of this rule in the manner that best enhances public 
safety in their respective jurisdictions.
    Regarding the commenters who referenced Printz v. United States, 
521 U.S. 898 (1997), the Department notes that current Federal 
regulations do not require CLEOs to provide a CLEO certification for an 
applicant, a fact that many commenters pointed out as the primary 
reason for the proliferation of the use of NFA trusts. Unlike in 
Printz, this final rule imposes no obligations on CLEOs but does 
provide them with the ability to obtain information that is potentially 
useful to accomplishing their missions and the opportunity to provide 
relevant information to ATF. Historically, the CLEO certification was 
designed to assist in maintaining public safety and was established to 
gather any information on the local level that might require denial of 
an application to make or receive an NFA firearm. Prior to the advent 
of comprehensive criminal history databases, CLEO certification was 
critically important. That role is less important today, and public 
safety concerns can still be addressed with CLEO notification without 
imposing unnecessary burdens upon local CLEOs.
    As a result of ATF's review of public comments received in response 
to the proposed rule, the Department will remove the CLEO certification 
and replace it with a notification obligation upon the applicant/
transferee, including

[[Page 2695]]

responsible persons of a trust or legal entity. This notification will 
reduce the burden on State and local agencies because notification does 
not involve signing off on applications. This will also simplify the 
process for CLEOs as the same criteria will apply to both unlicensed 
trust, legal entity, and individual applicants/transferees. Finally, 
ATF will continue to receive fingerprint cards along with applications 
for the purpose of conducting background checks to ensure that 
responsible persons of an applicant or transferee are not prohibited 
from possessing an NFA firearm. ATF will continue to conduct these 
activities and therefore these activities will impose no additional 
costs on CLEOs.
    Because CLEO notifications will require only those resources that 
the CLEOs themselves decide to devote to notification management, 
additional funding to assist State, local, and tribal governments in 
complying with this rule is unnecessary.
    The Department has determined that this rule is not an unfunded 
mandate because it does not meet the criteria under UMRA. Specifically, 
it does not result in the expenditure of funds by State, local, and 
tribal governments, in the aggregate, or by the private sector of $100 
million or more in any one year. See section VI.A.3 for additional 
details about the Department's estimate of costs to State and local 
entities.
6. Paperwork Reduction Act
    Many commenters stated that the proposed rule, with its proposal to 
expand the CLEO certification requirement to responsible persons, 
imposed an increased information collection burden (i.e., additional 
paperwork) on the public, and violated the Paperwork Reduction Act 
(PRA). Some commenters mentioned the impact in terms of the PRA 
generally; others focused on the PRA of 1980 (Pub. L. 96-511, 94 Stat. 
2812, codified at 44 U.S.C. 3501-3521) as an Act designed to reduce the 
``total amount'' of the paperwork burden the Federal Government imposes 
on private businesses and citizens. Others mentioned the PRA of 1995, 
which confirmed that the authority of the Office of Information and 
Regulatory Affairs (OIRA) at the Office of Management and Budget (OMB) 
``extended over not only agency orders to provide information to the 
government, but also agency orders to provide information to the 
public.'' A few commenters argued that the CLEO certification 
requirement, regardless of the proposed expansion, places an 
``unnecessary burden'' of paperwork on the public as there is no ``just 
reason'' for CLEO certification given ATF's access to the FBI's 
national criminal history databases. Others observed that the rule 
would complicate and perhaps degrade applicants' opportunities to 
submit their NFA applications by electronic means, thereby increasing 
the paperwork burden. Some commenters observed, however, that 
eliminating the CLEO certification requirement for individuals and 
legal entities, and instead requiring a NICS check with a Form 4473 at 
the time of physical transfer of the NFA firearm, would enable 
applicants to e-file all NFA transfer forms, greatly reducing paperwork 
and streamlining the approval process at ATF. A number of commenters 
offered additional suggestions designed to increase application 
processing efficiency and speed; for example, having ATF maintain a 
database of approved applicants, having ATF permit electronic payments, 
and reducing the redundancy in ATF's processing system associated with 
multiple applications.
    One commenter suggested further ways to decrease paperwork and 
reduce the redundancy in ATF's processing system associated with 
multiple applications submitted by the same person or legal entity. 
This commenter suggested that ATF consolidate applications from repeat 
applicants, maintain and use a database of approved applicants, and 
perform background checks on new applications from the date of the last 
approval. In this way, the commenter contended, the process would be 
shortened but maintain its integrity.
Department Response
    The Department acknowledges the commenters' concerns that the 
proposed expansion of the CLEO certification requirement, as well as 
the CLEO certification requirement for individuals, imposed paperwork 
burdens on the public and on ATF. The Department also acknowledges that 
the proposed expansion may have limited the use of the ATF eForms 
system for many NFA applications because of the manual submission of 
fingerprint cards, etc. As discussed in section IV.C.1, the Department 
is removing the CLEO certification requirement for individuals, and 
replacing it with a notification requirement for both individuals and 
trusts or legal entities. This change will help reduce paperwork and 
increase efficiency for the public and ATF. Section VI.G of this rule 
fully discusses the paperwork burdens.
    Regarding commenters' other suggestions for streamlining the 
process (e.g., permitting electronic payments and reducing redundancy 
with multiple applications), the Department addresses those comments in 
section IV.G. The Department continues to maintain that requiring 
background checks for responsible persons, which includes a requirement 
that they submit photographs and fingerprint cards to ATF, increases 
public safety. See section IV.C.4 for discussion of benefits.

E. Comments on Costs and Benefits

1. Implementation Costs of Rule are Underestimated
a. Number of Responsible Persons per Legal Entity
Comments Received
    In the proposed rule, ATF estimated an average of two responsible 
persons associated with a legal entity. Many commenters stated that ATF 
grossly underestimated this number and that having more than two 
responsible persons was not calculated into the cost. A number of 
objections were raised as to the sample size ATF used to obtain its 
estimate, which commenters argued was too small and not determined 
through statistically rigorous analysis. One of these commenters stated 
that if ATF's estimate of two responsible persons was inaccurate, it 
should propose another comment period with a revised number of 
responsible persons and associated costs.
    Numerous commenters also noted that given the breadth of the 
definition of ``responsible person'' in the proposed rule, it was 
likely that the average number per legal entity was much higher than 
two. Commenters, including persons with experience preparing NFA 
trusts, opined that two was more likely to be the minimum number per 
legal entity, not the average. For corporations or LLCs, in particular, 
commenters observed that the number could be higher still, potentially 
in the ``hundreds to thousands.''
    Commenters noted that if, as they believed, ATF's estimated average 
number of responsible persons was unreasonably low, its cost estimate 
was equally unreliable. One commenter opined that the total annual 
direct implementation costs to citizens involved in NFA transactions 
should be at least three times higher than ATF's estimate (i.e., 
$35,889,261 instead of $11,963,087). This commenter stated that the 
estimated annual costs to ATF and local law enforcement agencies also 
should be adjusted (i.e., ATF annual costs: $5,423,682 instead of 
$1,807,894;

[[Page 2696]]

local law enforcement annual costs: $3,790,680 instead of $1,263,560). 
Therefore, this commenter estimated the total implementation costs at 
$45,103,623 ($35,889, 261 + $5,423,682 + $3,790,680 = $45,103,623), 
three times higher than ATF`s total implementation costs of $15,007,541 
($11,963,087 + $1,807,894 + $1,263,560 = $15,007,541).
Department Response
    For this final rule, the Department reviewed a random sampling of 
454 forms to determine the average number of responsible persons per 
legal entity. The random sample was pulled from the 115,825 Forms 1, 4, 
and 5 processed in CY 2014. The forms to be reviewed were generated 
using established sampling methods based on ATF criteria of a 95 
percent confidence level with a 2 percent sampling error, and 
represented a mixture of legal entities including trusts, corporations, 
and LLCs. The random sample showed that the average number of 
responsible persons was approximately two. Additionally, the random 
sample showed that the most frequent number of responsible persons was 
one (with 226 instances), followed by two (with 124 instances). This 
represents 78 percent of the forms reviewed. The highest number of 
responsible persons in the sample was 11. Based on its random sample, 
the Department continues to estimate that each trust or legal entity 
has an average of two responsible persons. Moreover, the criteria used 
for determining who would be a responsible person in the most recent 
random sample review was based on a definition of ``responsible 
person'' materially similar to the revised definition of responsible 
person in this rule. See supra section IV.C.4.a. The Department 
acknowledges that the cost estimates for this final rule are based on 
an estimated average number of two responsible persons, but that 
individual experiences may vary.
    To be considered a responsible person, the individual must possess, 
directly or indirectly, the power or authority to direct the management 
and policies of the entity insofar as they pertain to firearms. This 
power or authority will be limited by the terms of the trust or the 
structure of a legal entity. Therefore, not every individual named in a 
trust document will be considered a responsible person, but any person 
who has the capability to exercise such power and possesses, directly 
or indirectly, the power or authority under any trust instrument, or 
under State law, to receive, possess, ship, transport, deliver, 
transfer, or otherwise dispose of a firearm for, or on behalf of, the 
trust, will be considered a responsible person of the trust.
    With respect to the definition of responsible person that was used 
to determine the average number of responsible persons at trusts and 
legal entities, the definition used was materially similar to the 
definition that appears in this final rule. The Department has thus 
concluded that, under the definition of responsible person that appears 
in this final rule, the best estimate of the average number of 
responsible persons at trusts and legal entities is two. The Department 
notes that none of the trust documents reviewed in the sampling gave 
beneficiaries the power or authority to direct the management and 
policies of the trust, including the capability to exercise such power 
and possess, directly or indirectly, the power or authority under any 
trust instrument, or under State law, to receive, possess, ship, 
transport, deliver, transfer, or otherwise dispose of a firearm for, or 
on behalf of, the trust.
b. Number of Pages of Supporting Documents
Comments Received
    A few commentators questioned the sampling methodology ATF used to 
determine that the documents chartering a legal entity averaged 15 
pages in length and thought it was ``highly suspect.'' These commenters 
noted that ATF reviewed a different sample size to determine the 
average length of documentation than it used to compute the average 
number of responsible persons per legal entity (i.e., ATF reviewed 50 
applications to determine the average number of constitutive documents 
for trusts and legal entities and 39 applications to determine the 
average number of responsible persons). Without access to ATF's 
methodology, these commenters believe that the unexplained difference 
strongly suggests sampling or selection bias. One of these commenters 
stated that ATF has not addressed his request--through counsel--for 
information about the methodology used. In addition, these commenters, 
and a few others, alleged that the sample size was too small. Another 
commenter stated that for the average length to be 15 pages, that would 
mean, statistically, that half of the trusts have fewer than 15 pages 
of trust documents, which the commenter did not consider believable.
    Another commenter stated that his own experiences as the owner and 
founder of Gun Trust Lawyer[supreg], a nationwide network of lawyers, 
confirm what many other commenters observed, namely, that ATF 
underestimated the document length and other costs associated with the 
proposed rule. This commenter and several other commenters stated that 
the document length of a sample revocable trust used by Gun Trust 
Lawyer[supreg], including exhibits and attachments, is almost double 
the length that ATF estimated when the trust has four to six trustees, 
a typical number of trustees. These commenters stated that the sample 
revocable trust, used by this network includes a 19-page trust 
document, with additional pages for assignment of property and 
recording contributions, witnessed statements from each trustee and the 
settlor, and the signed ``Trustee Declaration'' and notarized signature 
page. Another commenter stated that documents associated with 
sophisticated estate plans or complicated trusts can be quite lengthy 
with trust instruments and entity formation documents ranging from a 
few pages to hundreds of pages when their schedules, exhibits, and 
attachments--all of which must be filed with ATF--are included. Another 
commenter stated that the gun trusts he creates are at least 65 pages 
long, and that he knows a substantial number of other attorneys who 
also create trusts of this length. Another commenter stated that his 
trust comprises 18 articles and over 70 pages. This commenter stated 
that ATF needed to reevaluate the sample and revise the cost 
assumptions.
    Another commenter stated that ATF did not consider corporations and 
LLCs when estimating the average document length, and asked about the 
average length of document pages that a corporate entity and its 
shareholders would submit. Another commenter stated that the type of 
documents needed to evidence the existence and validity of 
partnerships, companies, associations, corporations, and trusts is 
governed by ``formation and continuation'' rules, which vary among the 
50 States and are ``complex, state-specific, and diverse in purpose.'' 
This commenter stated that it is highly unlikely that ATF will be able 
to examine ``hundreds or perhaps thousands of pages of trust or entity 
documents'' due to lack of time and expertise.
Department Response
    For this final rule, the Department reviewed a random sampling of 
454 applications to determine the average number of pages in the 
corporate or trust documents. The random sample was derived from 
115,825 Forms 1, 4, and 5 processed in CY 2014. The forms

[[Page 2697]]

to be reviewed were generated using established sampling methods based 
on criteria of a 95 percent confidence level with a 2 percent sampling 
error and represented a mixture of trusts and corporations, LLCs, and 
other legal entities. Based on its review of the random sample, ATF now 
estimates an average length of sixteen pages. Thirty-eight percent of 
the random sample had between six and ten pages. Twenty-nine percent of 
the random sample had between eleven and twenty pages. The highest 
number of pages in the random sample was fifty-five. Only two percent 
of the random sample had more than 50 pages and only three percent of 
the random sample had more than 40 pages. The Department acknowledges 
that the cost estimates are based on an average number of pages, 
including attachments, and that individual experiences may vary.
    The Department acknowledges that each State is specific in the 
documentation required for partnerships, companies, associations, 
corporations, and trusts. ATF examines all submitted documents when 
trusts and legal entities apply for a Federal firearms license.
c. Costs for Photographs and Fingerprints
Comments Received
    ATF estimated that photographs would cost $8.00 and take an average 
of 50 minutes to obtain, and that fingerprints would cost $24.00 and 
take 60 minutes to obtain. Many commenters stated that ATF's estimates 
for photographs and fingerprints were unrealistically low, and, in 
their experiences, the costs and times were ``higher'' and even 
``significantly higher.'' The costs and times provided by the 
commenters for photographs ranged from $8.00 to $125 and 5 minutes to 
two weeks, respectively. The costs and times provided by the commenters 
for fingerprints ranged from no cost--complimentary service--to $120, 
and from 10 minutes to three weeks. A commenter stated that since ATF 
did not provide any supporting documentation for the estimated costs 
and times, it was not clear whether ATF surveyed only service providers 
in ``highly-competitive, urban markets.'' This commenter referenced the 
experiences of another commenter, who lived in a rural area and had to 
contact six police departments, taking several hours, before finding 
someone willing to fingerprint him. Other commenters mentioned 
additional costs in obtaining photographs and fingerprints that they 
believed ATF did not take into consideration such as work time missed, 
drive time, ``fuel, wear and tear on my personal vehicle,'' and ``value 
of my time.'' Another commenter stated that the stores offering in-
house photography are dwindling and that applicants will spend 15 
minutes locating a store, an average of at least 40 minutes for travel 
to and from the store, 20 minutes waiting for copy machines to warm up 
at the store, and additional time getting pictures taken and printed, 
totaling 75 minutes. This commenter referenced a nationwide chain's 
price for passport photographs at $11.99 plus tax, totaling $12.71, 
plus an $11.30 cost of driving to the store, computed by estimating an 
average roundtrip of 20 miles at the Federal mileage rate. This 
commenter summed up costs and time at $24.01 and 75 minutes, 
respectively, to obtain photographs. This commenter accepted ATF's 
estimate of $24.00 to obtain fingerprints but considered ATF's estimate 
of the associated time as 60 minutes to be low. This commenter 
estimated the time at 100 minutes (70 minutes total travel time plus 30 
minutes on site to obtain fingerprints) plus an average round trip of 
40 miles costing $22.60, determined at the Federal mileage rate. This 
commenter tallied the fingerprint costs and time at $46.60 ($24.00 + 
22.60 = 46.60) and 100 minutes, equating to $97.93 per responsible 
person. As support for his position that ATF underestimated the 
fingerprint costs, another commenter provided a link to the Department 
of Homeland Security's Transportation Security Administration Web page 
\13\ to show listed fingerprint service costs.
---------------------------------------------------------------------------

    \13\ The Department notes that this link was a nonfunctioning 
link.
---------------------------------------------------------------------------

Department Response
    Fingerprints may be taken by anyone who is properly equipped to 
take them (see instructions on ATF Form 1, Form 4, Form 5, and Form 
5320.23). Therefore, applicants may utilize the service of any business 
or government agency that is properly equipped to take fingerprints. 
Depending on where the fingerprints are taken, the service may require 
an appointment, and appointment availability may be limited. Some 
businesses provide evening and weekend appointments and a number of 
private companies provide mobile fingerprinting services at a location 
chosen by the customer to be fingerprinted. Additionally, some mobile 
fingerprinting services offer special pricing to groups of individuals 
who need to be fingerprinted.
    ATF reviewed 254 Web sites that published the cost of fingerprint 
service. Information was obtained from businesses and government 
agencies located throughout the United States, in both urban and rural 
areas. The review disclosed a cost from zero to $75.00 for two 
fingerprint cards. One hundred thirty-eight of the Web sites listed a 
cost between $10.00 and $20.00. Based on its review, ATF estimates the 
average cost to be $18.66.
    The estimated time to obtain fingerprints set forth in the proposed 
rule was 60 minutes. This estimate was derived from information ATF 
submitted to OMB as part of the renewal approval process for ATF Forms 
1, 4, and 5. The time estimate has been accepted by OMB as an 
appropriate estimate of the time needed to obtain fingerprints. A 
review of twenty-two Web sites that published an approximate amount of 
time to obtain fingerprints disclosed time estimates ranging from 5 
minutes to 120 minutes, with the average time being 22 minutes. As not 
all the Web site estimates include wait time to obtain fingerprints, 
the Department believes the estimate of 60 minutes is a reasonable time 
approximation. The Department recognizes that individual experiences 
may vary from the estimated time.
    Photographs must be a size of 2 inches x 2 inches of a frontal view 
taken within one year of the date of the application (see 27 CFR 479.63 
and 479.85). There is no requirement that the applicant/transferee use 
a professional photographer to acquire the photographs, provided that 
they meet the stated requirements. The photographs may be taken at home 
with a digital camera and printed out in the required size using a 
color printer or the applicant/transferee may use a Web site that 
provides this service. In addition, the applicant/transferee may choose 
to obtain passport photographs, which meet the required specifications.
    Numerous businesses offer passport photograph services including 
national chain stores. Generally, there is no appointment necessary to 
obtain passport photographs from these types of businesses.
    ATF reviewed 57 Web sites that published the cost of passport 
photographs. Information was obtained from businesses located 
throughout the United States, in both urban and rural areas. The review 
disclosed a cost for two passport photographs that ranged from zero to 
$25.00. Thirty-five of the Web sites listed a cost between $10.00 and 
$15.00. Based on its review, ATF estimates the average cost is $11.32. 
The Department recognizes that the costs associated with individual 
experiences may vary from the estimated cost.

[[Page 2698]]

    The estimated time of 50 minutes to obtain photographs was obtained 
from information ATF submitted to the OMB as part of the renewal 
approval process for ATF Forms 1, 4, and 5. The time estimate has been 
accepted by OMB as an appropriate estimate of time to obtain 
photographs. A review of fifteen Web sites that published an 
approximate amount of time to obtain photographs disclosed time 
estimates ranging from 5 to 15 minutes with the average time being 10 
minutes. As the Web site estimates include only the time necessary to 
have the photograph taken and printed, ATF believes the estimate of 50 
minutes (accounting for travel time and possible wait time) is a more 
accurate time approximation. The Department recognizes that individual 
experiences may vary from the estimated time.
d. Time To Obtain CLEO Certification
Comments Received
    ATF estimated that the time needed for a responsible person to 
procure the CLEO certification was 100 minutes (70 minutes travel time 
and 30 minutes review time with the CLEO). Several commentators stated 
that in their experiences, ATF's estimate was inaccurate, too low, 
``way off-base,'' and did not include additional associated costs. A 
few of those commenters stated that ATF did not consider the large 
number of instances where multiple CLEOs were unwilling to sign and an 
applicant needed additional time to ``hunt'' for a CLEO willing to sign 
the certification, which may have included visiting several different 
government offices, making appointments with multiple CLEOs, and 
educating and persuading the CLEO to sign the certification. A 
commenter stated that his CLEO would not review the form with him, and 
instead advised the commenter to mail in the form with an estimated 
wait of over 30 days for the CLEO to decide whether to sign the form. 
Another commenter expressed knowledge of many CLEOs who require that 
the applicant leave the form with their offices, and return later to 
pick it up, doubling ATF's estimated travel time of 70 minutes to 140 
minutes. This commenter also stated that a typical process is for the 
CLEO's assistant to first review the form--taking 30 minutes--and then 
for the CLEO to review the form--taking 15 minutes--so that the total 
CLEO review time is 45 minutes. This commenter also estimated 
applicants' drive time to average 40 miles, twice, to obtain the CLEO 
certification with a total mileage cost of $45.20 at the Federal 
mileage rate. This commenter tallied the costs at $140.17 per 
responsible person. Another commenter estimated that he spent over 240 
minutes calling and writing letters to try and obtain CLEO 
certification to no avail, far exceeding ATF's estimated 100 minutes.
    Another commenter stated that ATF did not justify or substantiate 
its estimate of 100 minutes. This commenter requested that ATF sample a 
statistically relevant number of NFA item owners to determine how long 
it actually takes to obtain CLEO certification. This commenter also 
requested that ATF consider the additional costs that some CLEOs 
arbitrarily impose on applicants as a condition to providing 
certification. According to the commenter, these conditions may include 
acquisition of an FFL03 Curio and Relic license or Concealed Weapons 
Permit, attendance at police fundraisers, volunteer service with the 
CLEO's department, or contributions to political campaigns.
Department Response
    The Department acknowledges that individual experiences to obtain 
CLEO certification have varied from the time estimate. However, the 
time estimate is no longer relevant as the CLEO certification has been 
replaced with a CLEO notification requirement. See supra section 
IV.C.1.
e. Time Valuation Costs on Civilian Workers
Comments Received
    A trade organization commenter stated that by basing all of its 
time valuations on $30.80--the current average hourly compensation for 
all civilian workers in the United States--ATF failed to consider that 
NFA firearms are often very costly, and that even the least expensive 
ones are discretionary purchases and unlikely to be made by low-income 
individuals. This commenter also noted that these items typically have 
a $200 making or transfer tax, and that people using legal entities to 
make or acquire NFA firearms will already have incurred other expenses 
to create the legal entities, such as legal fees and corporate filing 
fees. This commenter suggested that ATF base its cost burden estimates 
on the actual characteristics of those who would be considered 
responsible persons. Other commenters stated that an individual 
purchasing NFA firearms would have higher than average disposable 
income and is not an average civilian worker.
Department Response
    The Department does not have access to confidential information 
such as the salary or disposable income for individuals purchasing NFA 
firearms. Commenters have not suggested a methodology or dataset that 
would permit the Department to more accurately estimate the time-value 
of responsible persons than the one it has adopted. The Department thus 
continues to believe that it is appropriate to base the time valuations 
for individuals and responsible persons of trusts and legal entities on 
the civilian hourly rate, as determined by the U.S. Department of 
Labor, Bureau of Labor Statistics. In June 2015, the hourly earnings 
for civilians was $33.19. See section VI.A.1 of this rule for further 
discussion and the U.S. Department of Labor, Bureau of Labor, Web site 
at https://www.bls.gov/news.release/pdf/ecec.pdf.
f. Other Incorrect Costs
    A commenter stated that ATF's time estimate of 10 minutes for a 
responsible person to complete Form 5320.23 was too optimistic. This 
commenter thought that ten minutes might be reasonable if the person 
completing it was familiar with the form, but that additional costs 
would be incurred to learn how to complete the form. This commenter 
asserted 15 minutes would be a more accurate estimate, equating to 
$7.70 per responsible person. Another commenter asked how ATF could 
accurately estimate a ``mere'' 10 minutes, on average, per responsible 
person to complete Form 5320.23, when the form had not yet been 
created. This commenter disagreed with ATF's statement that there would 
be no increased costs associated with mailing the application package 
to ATF, and called such a statement ``either willfully false, or 
woefully ignorant.'' This commenter argued that the proposed rule would 
add weight and increased cost to mail an application, which now must 
contain a ``significant'' number of paper pages (i.e., forms 5320.23, 
fingerprint samples, photograph samples, and CLEO certifications). This 
commenter also noted that the U.S. Postal Service recently announced a 
rate increase, which ATF did not factor into its cost calculations. 
This commenter also questioned how ATF could maintain that it would 
incur no additional costs to review this new paperwork when the 
proposed rule would result in more CLEO certifications, fingerprints, 
and photographs with each application.

[[Page 2699]]

    Another commenter considered ATF's estimate of cost to copy 
documents, associated with a legal entity, at $0.10 per page, a fair 
estimate; however, this commenter stated that the average trust, if 
properly drafted, would have 20 pages, not the estimated 15 pages. 
Additionally, this commenter stated that ATF's time estimate of 5 
minutes to make copies was low. This commenter stated that many legal 
entities do not have a copy machine on site and would need to travel to 
a commercial facility to make copies. This commenter estimated such a 
round trip to be 30 minutes and cover 15 miles on average, costing the 
applicant $8.48 (using the Federal mileage rate). This commenter stated 
that making copies and paying for those copies would take 10 minutes. 
Tallying the total times and costs, this commenter estimated that the 
entity would spend ``$16.95 to travel, $2.00 on copies, and 40 minutes 
to travel and acquire the copies. In dollars, this equates to $39.48 
per entity.''
    A commenter questioned ATF's estimated cost of $14.50 to process 
fingerprints. This commenter stated that $14.50 is the cost ATF pays 
but may not be the actual cost to the FBI. This commenter expressed 
interest in hearing from the FBI on the ``true'' cost transfer from ATF 
to the FBI.
Department Response
    The Department agrees with the suggestion that allowing 15 minutes 
to complete Form 5320.23, 5 minutes more than the estimate in the 
proposed rule (78 FR at 55022), is a fair estimate. With respect to 
mailing costs, the addition of a CLEO notification requirement will 
result in the mailing of an additional form to the CLEO (if the 
applicant/transferee or responsible person(s) opts to use mail 
delivery) but the associated costs are minimal. Moreover, any 
additional mailing costs will be offset by cost and time savings 
resulting from the elimination of the CLEO certification requirement. 
Further, postage costs are already included in the costs of completing 
and mailing Forms 1, 4, or 5 to ATF. As discussed in the proposed rule 
(78 FR at 55022), individuals, trusts, and legal entities must complete 
and mail Forms 1, 4, or 5 to ATF. This final rule should not change the 
costs associated with that process. Even if there are multiple 
responsible persons associated with a trust or legal entity, the trust 
or legal entity still will be completing and mailing one Form 1, 4, or 
5. Similarly, because CLEO notifications have replaced CLEO 
certifications, ATF's internal costs will remain as discussed in the 
proposed rule (78 FR at 55022).
    The Department agrees with the commenter who referenced ATF's 
estimate of cost to copy documents ``at $0.10 per page a fair 
estimate.'' Further, a more recent analysis of 454 random samples 
available to ATF suggests that 16 pages approximates the mean length 
for properly drafted trust documentation. In addition, the Department 
concurs with the estimate of ten minutes to make and pay for copies. 
Current data indicates that ATF pays the FBI $12.75 to process 
fingerprints, which is the appropriate cost for inclusion in this final 
rule.
g. Costs Not Considered
i. Lost Tax Revenue
Comments Received
    Many commenters stated that ATF failed to account for the 
significant loss of tax revenue by ATF from fewer NFA transfers, and on 
the income tax lost on the sale of NFA firearms by manufacturers, 
distributors, and dealers. Several of these commenters noted that ATF 
estimated 40,565 ATF Forms 1 or 4 were submitted in 2012 for non-FFL 
legal entities (78 FR at 55021). Several commenters stated that the 
proposed rule would ``discourage'' or ``scare off'' individuals from 
purchasing or making NFA firearms because the rule will make the 
application process for legal entities more difficult. These commenters 
stated that for every Form 1 and Form 4 that is not submitted to ATF, a 
$200 tax payment loss will result (unless the application is submitted 
for an ``Any Other Weapons'' weapon, in which case the tax payment loss 
would only be $5). Several commenters provided estimates of the 
decreased volume in NFA applications that they asserted would result 
from implementation of the proposed rule, and corresponding losses in 
NFA tax stamp revenue. These estimates of reduced applications ranged 
from a 50 percent reduction (attributed primarily to predicted refusal 
of CLEOs to sign certifications for legal entity responsible persons) 
to a 75 percent reduction (attributed primarily to a decrease in legal 
entity applications), with corresponding estimated losses in NFA tax 
stamp revenue of $6.1 to $8.1 million. Several commenters stated that 
the proposed rule would make it harder for people to legally purchase 
silencers, and asked, ``is ATF trying to eliminate $12,000,000+ in 
annual tax revenue?'' Several commenters asserted tax revenue losses 
would occur in addition to lost NFA tax stamp revenue. They stated that 
if the business of selling NFA firearms declined and caused small FFL 
dealers and custom manufacturers to cease dealing in NFA firearms, such 
dealers and manufacturers would surrender their SOT status and stop 
paying at least $500 annually to the U.S. Treasury. If small custom 
manufacturers determined it was no longer profitable to stay in 
business and were forced to shut their doors, such manufacturers would 
stop annual payments of at least $2,400 to the U.S. Treasury under the 
International Traffic in Arms Regulations. See 22 CFR 122.3. There 
would also be a less direct effect, as the entity operating the FFL, as 
well as the individual owners and employees, would lose income, which 
would result in a reduction in income tax revenue.
Department Response
    As noted, the final rule eliminates the CLEO certification 
requirement. Consequently, comments asserting tax revenue losses 
resulting from the refusal of CLEOs to sign certifications for legal 
entities are now moot. Moreover, the Department does not anticipate a 
decline in Form 4 applications. The Department has not observed, and 
does not anticipate, reduced demand for NFA firearms or a decline in 
the filing of applications (Forms 1 and 4). Applications have generally 
increased each year and the Department expects this trend to continue 
as more States loosen restrictions on the use, in particular, of 
silencers for hunting or target shooting.
    Moreover, because the CLEO notification requirement and the 
requirements for fingerprint and photograph submission will be the same 
under the final rule for individual applicants and trusts and legal 
entities, applicants may choose to forgo the formation of a trust or 
legal entity and acquire firearms as individuals. A number of 
commenters have observed that the proliferation of NFA trusts is a 
direct result of the CLEO certification requirement for individual 
applicants. It is therefore fair to predict that eliminating the 
certification requirement will reverse that trend. Applications 
submitted by an individual are less complex because they do not require 
documentation evidencing the existence and validity of a trust or legal 
entity, such as articles of incorporation.
    Contrary to the assertions of several commenters, the Department 
does not anticipate that implementation of the final rule will result 
in an increase in the number of FFLs or FFL/SOTs going out of business. 
The number of FFLs that also paid SOT to manufacture, import, or deal 
in NFA firearms increased 117 percent between 2009 and 2014. The 
Department estimates that the

[[Page 2700]]

number of FFLs that also pay SOT will increase an additional 30 percent 
by the end of 2015.
ii. Hearing Loss
Comments Received
    Many commenters stated that the proposed rule completely overlooked 
the cost of hearing loss due to the unavailability of silencers. Many 
commenters stated that many citizens desire to make or acquire 
silencers to protect their hearing while engaged in lawful, 
recreational shooting, as well as in self-defense situations. These 
commenters stated that the proposed rule imposed obstacles to making 
and acquiring silencers, and a significant number of shooters who 
desire to use silencers will be unable to do so. Several commenters 
provided data and statistics showing: The level of impulse noise 
generated from unsuppressed firearm discharge; that firearm discharge 
is a leading cause of noise induced hearing loss; the efficacy of 
silencers at protecting hearing; and the impracticality of using means 
other than silencers in certain situations (e.g., ear protectors in a 
home-defense situation). These commenters also provided data estimating 
that a 7 percent hearing loss may result for every five years spent 
hunting. These commenters stated that over time many recreational 
shooters, who are continually exposed to the noise, will have permanent 
hearing loss. A few commenters stated that those impacted hunters will 
bear ``substantial medical costs and partial disability resulting in 
lost productivity.'' Another commenter provided data from a specialist 
who put a specific dollar estimate on firearm related hearing-loss 
costs (the commenter stated the estimate was supported by the ``Value 
of a Statistical Life'' method). This specialist estimated a minimum 
cost of $15 million, considering only the direct costs of medical care, 
testing, and hearing aids, and stated that the estimate is likely to 
exceed $100 million when one adds disability to the direct medical 
costs. A few commenters generally mentioned a National Shooting Sports 
Foundation study that showed that in 2011 there were 14,630,000 paid 
hunting license holders and that total recreational shooters exceeded 
30 million.
Department Response
    The Department recognizes that the use of a silencer while shooting 
a firearm may help to reduce hearing loss. Neither the proposed rule 
nor the final rule prohibit the manufacture or sale of silencers; the 
primary premise of the comments is that silencers will become less 
available as a result of the proposed rule, thereby increasing societal 
costs from shooting related hearing loss. The Department disagrees that 
the final rule will significantly reduce the availability of silencers. 
The final rule no longer requires CLEO certification, the aspect of the 
proposed rule most commonly cited by commenters as an impediment to 
consumers obtaining silencers and other NFA weapons (from either 
retailers or private transfers). With the elimination of the CLEO 
certification requirement for all NFA applications, including 
individuals, the process for individuals who wish to purchase a 
silencer to protect from hearing loss becomes less, not more, 
burdensome. Moreover, as is noted in several sections of this final 
rule, the silencer industry has experienced significant growth largely 
as the result of several States legalizing the ownership of silencers 
for hunting and other purposes under State law. This legalization trend 
among the States is likely to continue, strengthening demand for 
silencers, thus driving additional industry growth and increased 
product availability. Finally, with respect to assessing the societal 
costs of firearms-related hearing loss, the Department is unaware of 
any peer reviewed study calculating an average value for hearing loss 
attributable only to the use of firearms without silencers.
iii. Attorney Costs
Comments Received
    Many commenters stated that ATF failed to consider the costs that 
individuals associated with trusts or legal entities would incur to 
consult with attorneys to accurately determine the number of 
individuals associated with their trusts or legal entities that would 
fall under the proposed ``responsible person'' definition. Another 
commenter stated that the proposed rule did not address the interstate 
nature of corporations, and that an individual would need to consult an 
attorney--at $150 per hour--to determine what jurisdiction the CLEO 
certification would be required to be obtained in. A few commenters 
provided their total attorney fees to consult with lawyers specializing 
in NFA legal matters and to form an NFA trust that complied with all 
the relevant laws; these fees ranged from $200 to over $1,500. Another 
commenter stated that if the proposed rule were implemented, applicants 
would need to obtain revised trust documents from a licensed attorney. 
This commenter, a licensed attorney, conservatively estimated the 
average cost and time at $200 per trust and at least two hours of the 
applicant's time, respectively. After assuming that 20 percent of the 
approximately 100,000 NFA related trusts or other entities would 
require revision, this commenter estimated the costs to trusts for 
legal fees to be $4,000,000 plus 40,000 client hours.
    This same commenter stated that ATF did not estimate the costs for 
attorneys to revise forms, attend continuing legal education, and 
perform other uncompensated work needed to comply with the proposed 
changes. This commenter estimated five hours for each attorney to 
perform these activities. After assuming 1000 attorneys are involved 
nationwide in NFA matters and a conservative hourly rate of $200, this 
commenter estimated the total cost at $1 million.
    Another commenter stated that ATF did not estimate the cost to ATF 
for a State licensed attorney to review the submitted trust 
documentation to ensure the trust's validity and that all responsible 
persons are included. This commenter estimated the annual cost to ATF 
at $1,628,000 after assuming 40,700 trust documents, half an hour of 
the attorney's time to review each trust, and an $80 hourly rate.
Department Response
    There is no requirement to form a trust or legal entity to acquire 
an NFA firearm. In fact, all of the legal fees included in the comments 
may be avoided if the NFA firearm is acquired by an individual. 
Therefore, when an applicant voluntarily decides to register a firearm 
to a trust or legal entity, the applicant assumes all responsibilities 
for determining the responsible persons--including legal fees 
associated with making that determination. Additionally, as noted, the 
final rule no longer requires CLEO certification; the final rule 
requires only CLEO notification. Moreover, both the text of the final 
rule (when incorporated into a regulation) and instructions on revised 
ATF forms will provide specific directions as to who must provide 
notification to the CLEO. Therefore, it may not be necessary to consult 
an attorney to determine this information.
    As the attorney-commenter did not specify why trust documents would 
need to be revised, the Department cannot directly address this 
concern. There is no requirement, existing or proposed, to form a trust 
or legal entity to acquire an NFA firearm or to satisfy any CLE 
requirement. The cost of CLE is therefore outside the scope of the cost 
of this final rule.

[[Page 2701]]

iv. Costs To Update Publications/Resources
Comments Received
    A commenter stated that ATF did not estimate the costs to revise 
various publications, informational brochures, industry Web pages, and 
other miscellaneous resources relied upon by NFA applicants and 
potential applicants for NFA information such as those published by 
hobbyists, industry, retailers, local law enforcement, and Federal 
agencies. The commenter could not estimate such costs but imagined that 
such costs could easily be $1,000,000 or more nationally.
    Another commenter stated that ATF's cost analysis did not address 
the cost of implementing the forms and applications in the NFA Branch 
that have a ``pending'' status when the rule changes are implemented.
Department Response
    ATF updates its publications, Web site, and forms on an ongoing 
basis and will continue to do so each time there are changes to Federal 
firearms laws or regulations. FFLs, other law enforcement agencies, 
trade associations, and other entities are not required under Federal 
law or regulation to provide information on the NFA or on how to 
acquire an NFA firearm. Therefore, these comments are outside the scope 
of this rulemaking. Additionally, such costs are difficult to estimate, 
and informational resources provided by other entities are routinely 
updated as a matter of course, making it difficult to trace what update 
costs are specifically attributable to ATF's new rule. The commenter 
did not suggest a methodology by which ATF could readily quantify such 
costs, and ATF believes any such costs directly traceable to the 
promulgation of this final rule will be negligible.
    With regard to the comment regarding applications that have a 
``pending'' status when the rule is implemented, all applications 
postmarked prior to the effective date of the rule will be processed 
under the current regulations. The same is the case for any 
applications that have a pending status at the time the rule is 
implemented. Consequently, no additional costs will be incurred by ATF 
to process pending applications.
v. Litigation Costs
Comments Received
    Several commenters stated that ATF omitted the costs to ATF, DOJ, 
and local law enforcement of litigation that could potentially arise if 
the proposed rule were implemented. These commenters stated that ATF 
must expect significant judicial challenges to the proposed CLEO 
certification requirements for responsible persons as many law abiding 
citizens will no longer have a ``work-around'' or mechanism to avoid 
CLEO certification, will consequently face arbitrary refusal by CLEOs, 
and will be unable to own or possess otherwise legal NFA items. A few 
of these commenters stated that citizens who live in jurisdictions 
where every local CLEO refuses to sign off on the NFA paperwork would 
have no recourse other than to sue ATF or DOJ. Another commenter 
referenced Lomont, 285 F.3d 9, and stated that ATF's proposal to extend 
the CLEO certification would survive a ``facial challenge'' under the 
Administrative Procedure Act. However, this commenter predicted that in 
cases where every qualified CLEO refuses to provide the certification 
even though the applicant is not prohibited by State or local law from 
making or receiving the firearm, such an applicant could bring an ``as-
applied challenge'' and win.
    Another commenter expressed the opinion that the rule was too vague 
to withstand legal scrutiny and would result in expensive litigation. 
Another commenter stated that DOJ will spend millions of taxpayer 
dollars ``in vain'' trying to defend this rule in various courts. 
Another commenter agreed that taxpayers would ``foot the bill'' for the 
litigation that citizens allegedly denied their constitutional rights 
would bring against local and State governments, and the Federal 
Government, and that this would place a huge burden on local 
departments and agencies.
Department Response
    The change from CLEO certification to notification addresses the 
substance of the concerns expressed in these comments and will reduce 
the likelihood of litigation.
    Additionally, the Department regards the possible costs of 
potential future legal challenges as difficult to quantify. Commenters 
did not suggest a methodology by which the Department could accurately 
measure such costs. Moreover, the Department already must maintain a 
legal staff to defend its rules that it must fund whether or not any 
particular legal challenge is brought. It would thus be difficult to 
determine the extent to which litigation about the rule would add to 
the Department's legal costs.
    Finally, the Department does not regard the potential cost of 
defending the lawfulness of its rule as appropriate to include in an 
assessment of the costs and benefits of the rule. Such costs are 
imposed by third parties that choose to file suit regardless of the 
potential legal merit of their claims. If the costs of defending suits 
formed part of the cost of a rule, opponents could claim that they 
would file suit, regardless of the merits of their claims, and thereby 
drive up the estimated cost of the rule. If an agency were required to 
factor litigation threats into the cost of a rule, opponents 
threatening litigation could exercise a sort of veto over agency 
rulemaking by artificially increasing the rule's costs.
vi. Miscellaneous Costs
Comments Received
    A commenter stated that ATF severely underestimated the time and 
costs to trust participants arising from the rule. This commenter 
stated that the proposed rule would take trust participants an 
additional 30 days to properly coordinate and submit the required 
documentation for each NFA item requiring approval by the NFA Branch.
    Another commenter stated that neither ATF nor any other component 
within DOJ provided ``credible information, studies, or analysis'' 
showing details of the estimated annual fiscal costs and the 
feasibility of implementing the proposed rule. This commenter asked 
that the Government Accountability Office (GAO) perform an 
``independent, non-partisan review'' of the proposed rule and its 
current and potential fiscal impact, as well as its feasibility, and 
submit the findings to Congress so Congress could review to determine 
if the proposed rule complied with the ``policies, rules, and 
standards'' governing ATF.
    One commenter noted that ATF calculated the costs of the proposed 
rule based on the number of legal entity applications from previous 
years, and further noted that ATF listed a large increase in legal 
entity applications from 2000 to 2012 as evidence, in the commenter's 
words, that these applications ``are serving as a mask for individuals 
who otherwise would be prohibited from owning guns.'' This commenter 
stated that if the proposed rule's purpose is to target and reduce such 
activity, then ATF's cost calculations should reflect a reduction in 
the number of applications by legal entities.
Department Response
    The Department does not agree with the commenter that the proposed 
rule would add an additional 30 days to the process of acquiring an NFA 
firearm. The commenter provided no empirical evidence or analysis 
supporting this

[[Page 2702]]

assertion, and the Department is unaware of any aspect of the final 
rule that would lead to an increase in time expended by applicants on 
this scale. Under the revised definition of responsible person, the 
average number of responsible persons is estimated at two. Those two 
responsible persons may reside in the same household (e.g., husband and 
wife) or work in close proximity to each other, which would ease 
coordination of the collection of fingerprints and photographs required 
for the application. Furthermore, because responsible persons are no 
longer required to obtain CLEO certification, no delay will result from 
that issue.
    Proposed changes to ATF regulations, including the proposals set 
forth in the NPRM and this final rule, undergo a rigorous review 
process by both the Department and the Office of Management and Budget. 
These reviews include close scrutiny of the estimated annual fiscal 
costs associated with the proposed and final rules. Finally, the 
proposed rule and this final rule have been published for public 
comment and scrutiny. In light of all these review procedures, the 
Department does not believe additional review of this rule by the GAO, 
as requested by a commenter, is necessary or warranted.
    The Department also does not agree with the commenter who asserts 
that the purpose of the proposed rule is to target and reduce NFA 
applications filed by trusts. The objective of the final rule is 
instead to ensure all applicants, regardless of whether they are an 
individual applying in an individual capacity or applying in a 
representative capacity on behalf of a trust or legal entity, are 
subject to the same approval process to help ensure that prohibited 
persons do not obtain NFA firearms.
    Moreover, the Department's decision to base its estimate of the 
costs of the rule on the number of trusts and legal entities that 
currently apply to make and transfer NFA firearms is appropriate 
because it likely accurately estimates the overall number of background 
checks and information submissions that will need to be undertaken as a 
result of the rule. To the extent individuals presently create single-
person trusts and legal entities to circumvent background check 
requirements, they may now choose simply to submit individual 
applications. To be sure, that would result in a decrease in the number 
of applications from trusts and legal entities. But it would be 
accompanied by a concomitant increase in the average number of 
responsible persons at the trusts and legal entities that remain. The 
overall number of information submissions and background checks is 
therefore likely to remain roughly equivalent to the Department's 
estimate. Commenters have not suggested a method of estimating the 
costs of the final rule that is superior to the methodology the 
Department has chosen.
2. Financial Impact on Firearms Industry
a. Impact on the NFA and General Firearm Industry, Specific Types of 
NFA Manufacturers, and Related Businesses (Including Law Firms)
Comments Received
    A large percentage of commenters asserted that the proposed rule 
will negatively impact NFA industry participants (including 
manufacturers, dealers, and employees) as well as related businesses 
such as suppliers. The commenters characterized their assessments of 
the financial impact on business in a number of different ways: The 
impact on NFA manufactures; the impact on specific NFA manufacturers 
such as silencer manufacturers; the impact on firearm dealers; the 
impact on related industries such as suppliers to manufacturers; the 
impact on general lawful commerce in firearms; the impact on ``small 
businesses;'' the impact on employees of various businesses in the form 
of lost jobs and wages; and general claims of ``reduced revenue'' for 
industry and affiliated business.
    Most of the commenters focused their assessment of the proposed 
rule's negative impact on the provision in the proposed rule extending 
the CLEO certification requirement to trusts and legal entities. These 
commenters emphasized that, for numerous reasons, some CLEOs will not 
sign the NFA certifications even if the applicant is not prohibited by 
law from acquiring a firearm, freezing the application approval 
process. Because no process exists to override a CLEO's refusal to sign 
a certification, the refusal to sign functions as a denial of the 
application, preventing the applicant from purchasing the NFA item, and 
thereby depriving NFA manufacturers and dealers of law-abiding 
customers. A second recurring theme in the comments was that the 
proposed rule would decrease demand for NFA firearms, and thereby 
negatively impact businesses, because the rule will require a greater 
number of NFA applicants to undergo background checks (i.e., 
individuals affiliated with trusts and legal entities who fall within 
the proposed rule's definition of ``responsible persons'').
    Examples of comments from the various categories of 
characterization used by the commenters include the following:
i. Manufacturers and Dealers
    Several commenters reasoned that the proposed rule would make it 
more difficult to obtain NFA items and as a result would drive 
manufacturers out of business; one such commenter characterized the 
impact as jeopardizing the entire, booming ``cottage industry'' of NFA 
manufacturers. Similarly, an employee of a silencer manufacturer, that 
has been in business for more than 20 years, commented that the 
proposed rule would ``cripple'' his employer's business. One commenter 
listed multiple negative impacts he predicted the proposed rule would 
have on NFA manufacturers: (1) Lost investment in machines; (2) lost 
investment in unsellable inventory; (3) lay-offs of manufacturing and 
sales staff; and (4) no market for their product. Several commenters 
argued that the proposed regulation would make wait times for customers 
to obtain ATF approval even longer, resulting in frustrated customers 
and reduced sales.
    Many commenters directly linked predictions that the proposed rule 
would negatively impact NFA manufacturers and dealers to the CLEO 
certification requirement. They asserted that extending the 
certification requirement to legal entities will drastically inhibit 
sales of NFA items, particularly silencers, causing reductions in 
business, business closure, and loss of employees. Several FFL 
commenters asserted that the proposed rule would ``destroy'' their 
businesses because CLEO certification was difficult or impossible to 
obtain in their counties. One of these FFLs stated he had researched 
the impact of CLEO certification in his State, Texas, and determined 
that approximately ``70% of Texans'' will not be able to obtain a CLEO 
signature; therefore, he predicted, ``70% of his customer base'' would 
be eliminated by the proposed rule. Another FFL asserted that he 
anticipated a 75 percent loss in sales due to the CLEO requirement, and 
two other FFLs stated that they anticipated a 20 percent loss in 
revenue due to the CLEO certification requirement.
    Several commenters opined that the proposed rule would place 
significant financial burdens on firearm dealers by prolonging the 
transfer process for trusts and legal entities because under the 
responsible person definition the trust or legal entity will need to 
obtain the fingerprints and photographs of all members of the trust or 
legal entity.

[[Page 2703]]

These commenters maintained that the proposed rule will require dealers 
to reserve inventory without payment until the transfer process is 
complete--which currently takes in excess of nine months. Several other 
commenters stated that further delays encountered in the transfer 
process place NFA dealers at a significant financial disadvantage, 
noting that by the time a transfer is approved, often the item being 
transferred is a previous production model. Finally, a number of 
commenters focused on their belief that the proposed rule would 
negatively impact employment in the firearms industry, causing lay-offs 
and increased unemployment among employees of firearm manufacturers and 
sellers.
ii. Small Businesses
    Many commenters stated generally that the proposed rule will hurt, 
hinder, or make it harder for small business owners, particularly 
firearm related businesses, by increasing transaction costs and 
transaction times. Several commenters emphasized that small firearms 
related businesses are engaged in lawful commerce, and expressed the 
view the government was seeking to unfairly target such businesses with 
regulations increasing the cost of doing business. Other commenters 
hypothesized that the proposed rule will destroy small businesses 
because it would limit or prevent law-abiding citizens from acquiring 
NFA items.
iii. Specific Types of NFA Manufacturers and Markets
    Several commenters focused on the proposed rule's negative effect 
on specific NFA market segments such as the markets for silencers, 
short-barreled rifles, machineguns, and military surplus firearms. A 
large number of commenters claimed the proposed rule would 
significantly reduce the sale of silencers, driving silencer 
manufacturers out of business and potentially causing the entire 
silencer industry segment to collapse. Another commenter predicted the 
proposed rule would cause the collapse of the military surplus firearms 
market. Some commenters expressed concerns that the proposed rule could 
harm technical innovations for silencers, with one commenter asserting 
that advancements in silencer technology will grind to a halt, 
affecting the military firearms supplied to ``our troops overseas who 
deserve and require the best we have to offer.'' One commenter reasoned 
that the proposed rule will limit the availability of NFA items, thus 
making the value of silencers, machineguns, and short-barreled rifles 
increase for those who own them. This commenter anticipated that this 
effect would make current owners ``happy.''
iv. Impact on Related Businesses (Including Law Firms)
    Several commenters expressed concerns that the proposed rule will 
negatively impact firearms related-industries, not only those 
businesses directly involved in the sale and manufacture of firearms. 
Many of these commenters asserted that the proposed rule's CLEO 
certification requirement will have the effect of halting the sale of 
all NFA items in many areas (because, they assert, certain CLEOs will 
not sign certifications), which, they assert, will have a cascading 
effect: Reduced sales will result in substantial losses for NFA 
manufacturers and dealers (particularly those involved in the silencer 
market), which, in turn, will negatively impact businesses that 
contribute to the manufacturing process or derive business from 
firearms dealers and manufacturers. One commenter stated that the 
proposed regulation will cause well paying, American jobs to be lost in 
machining, manufacturing, marketing, and retail sales. Examples 
provided of related businesses that commenters believe would be 
negatively impacted also included: Ranges, materials suppliers, 
computer numerical control and milling operations and manufacturers, 
third party processors (such as Cerakote coating, powder-coating, 
anodizing, black oxide, metal sales, tooling, laser marking, and 
engraving), office supply stores, trade shows, and various NFA shooting 
events (such as machinegun shoots).
    Other commenters asserted that the proposed rule will negatively 
impact law firms that handle trust matters involving NFA items because 
demand for creation of trusts solely used to obtain and hold NFA 
firearms will decrease as a result of the proposed rule's provision 
defining responsible persons for legal entities and requiring such 
persons to undergo background checks. These commenters asserted that 
the decreased demand for firearm trusts will cause a loss of revenue to 
law firms and layoffs of law firm employees.
Department Response
    The Department acknowledges that this rulemaking will have some 
modest impact on the firearms industry; the Department does not agree, 
however, with the assessment of the many commenters who assert that 
this rulemaking will have a substantial negative economic impact on NFA 
industry participants (including manufacturers, dealers, and 
employees), and on related businesses such as suppliers. The comments 
asserting that the proposed rule will have substantial negative (and 
even catastrophic) impacts on the industry are primarily premised on 
two conclusions, neither of which, in the Department's view, are 
supported by the facts and circumstances underlying this final rule. 
The first conclusion is that the CLEO certification requirement in the 
proposed rule will deter potential purchasers who previously would have 
chosen to obtain an NFA firearm through a trust or legal entity because 
they could do so without the need for CLEO certification. This 
conclusion is largely based on assertions that many CLEOs (1) refuse to 
sign NFA certifications even when the applicant is not prohibited from 
possessing a firearm; (2) too slowly process certification requests due 
to resource constraints; or (3) seek to extract political or economic 
favors from applicants in exchange for signing a certification. As a 
result of the impediments posed by CLEO certification, the commenters 
assert, the proposed rule would have resulted in a drastic reduction in 
the sale of NFA weapons (particularly silencers), thus decimating the 
NFA industry and greatly harming related industries. The second 
conclusion is that the demand for NFA firearms will dramatically 
decrease if a greater number of NFA applicants are required to undergo 
background checks and to submit fingerprints and photographs. This 
conclusion is directly linked to the rule's definition of ``responsible 
persons'' affiliated with trusts and legal entities; persons meeting 
that definition will be required under this final rule to undergo 
background checks and submit fingerprints and photographs when the 
trust or legal entity they are affiliated with files an NFA application 
or is a transferee.
    The conclusion regarding the impact of CLEO certification has been 
rendered moot by this final rule. In response to the concerns expressed 
by commenters relating to CLEO certification, the Department has 
eliminated that requirement, and replaced it with a less burdensome 
CLEO notification requirement. Hence, obtaining CLEO certification is 
no longer a hurdle for individuals, trusts, or legal entities acquiring 
an NFA firearm, and therefore the problems identified by the commenters 
with respect to the CLEO certification process are no longer a factor 
threatening the economic health

[[Page 2704]]

of NFA manufacturers, dealers, and related businesses.
    With respect to the commenters' conclusion regarding background 
checks, the Department believes the reality of the firearms marketplace 
refutes the conclusion that background checks will deter individuals 
from acquiring NFA firearms. Background checks, a vital law enforcement 
tool that ensures prohibited persons will not unlawfully obtain 
firearms, are already conducted on virtually all non-licensed 
individual persons who purchase either a GCA or NFA firearm from an FFL 
or FFL/SOTs. Notwithstanding these checks, both the GCA and NFA 
firearms markets are flourishing. Background checks do not 
significantly deter non-prohibited individuals from purchasing firearms 
from licensed dealers, including NFA dealers and manufacturers.
    Other market conditions also refute the concerns about the proposed 
or final rule threatening the viability of NFA dealers and 
manufactures. Many States have been relaxing prohibitions on ownership 
of silencers, SBRs, and SBSs, thus expanding the market for these NFA 
firearms. In addition, the firearms industry is constantly introducing 
new and improved models. As evidence of this, the Shooting, Hunting and 
Outdoor Trade (SHOT) Show is attended annually by more than 62,000 
industry professionals from the United States and many foreign 
countries, seeking information on new firearms and shooting products. 
This is a clear market signal that demand for innovation and 
development of new firearms and shooting products, including NFA 
products, is strong, and will continue to support NFA manufacturers and 
dealers regardless of whether or when the final rule is implemented. 
Additionally, demand for silencers has continued to increase as several 
States have recently legalized ownership of silencers for hunting and 
self-defense; the trend of States legalizing silencer ownership appears 
likely to continue. Consequently, the Department anticipates demand for 
silencers will continue to rise. Finally, some States have recently 
relaxed laws restricting the possession of SBRs and SBSs, thereby 
increasing the potential market and demand for these NFA items.
    The Department also disagrees with comments that FFLs will be hurt 
because they reserve inventory without payment during the application 
process. An FFL may choose, as part of its business practice, to 
require payment in full on an NFA firearm before an application may be 
submitted. Additionally, ATF posts the processing time for NFA items on 
its Web site so a purchaser may determine the approximate time 
necessary to process the application. Due to the nature of the 
application process, some risk that a new model will be introduced 
prior to the approval of a customer's purchase is inherent; the new 
rule, however, does not materially increase that risk.
    The Department also rejects comments asserting that this rulemaking 
is intended to limit or prevent ownership of NFA items by persons who 
are not prohibited from receiving or possessing them. This final rule 
is intended to ensure only that persons acquiring and having access to 
NFA firearms are not prohibited from receiving or possessing them. 
Furthermore, in response to commenters who asserted that the decreased 
demand for firearm trusts will cause a loss of revenue to law firms and 
layoffs of law firm employees, a formation of a trust or other legal 
entity is not required to acquire an NFA firearm. Therefore, comments 
on the loss of income for attorneys who draft these documents is 
outside the scope of this rulemaking.
b. Burden of Implementation
Comments Received
    Several commenters took issue with ATF's assertion that the 
proposed rule would cause only a minimal burden to industry. In sum, 
these commenters explained that the proposed rule will be more than 
minimally financially burdensome to the industry because it will cause 
customers to stop buying NFA items due to the extended wait times and 
increased regulatory burdens created by the rule, thus making it less 
profitable for licensees to hold their SOT status.
    According to some commenters, as a result of the proposed 
regulation, some retailers are facing shutdowns, others face employee 
lay-offs, and all licensees and related-industries are bracing for 
revenue reduction. Some commenters stated the proposed rule 
unreasonably burdens commerce because of the cost of fingerprinting and 
passport photographs for every purchase. A commenter stated the 
proposed rule will make it more difficult for local businesses to sell 
items that are already difficult to obtain. Finally, a commenter argued 
that the proposed rule is so burdensome it will deter citizens from 
acquiring NFA items through the approved government process, and 
encourage the rise of a black market in NFA items. Several commenters 
claimed it will take about two or three additional hours of customer 
service assistance per transaction to handle the additional fingerprint 
cards, photographs, and application paperwork should the NPRM be 
implemented. One commenter estimated three additional customer service 
hours would be needed while others estimated two hours would be needed.
Department Response
    Applicants who purchase NFA firearms in an individual capacity have 
long paid the costs of fingerprints and photographs; the final rule 
equitably extends these costs to trust and legal entity applicants, and 
reasonably limits the photograph and fingerprint requirements to 
responsible persons of the trust and legal entity applicants. The 
Office of Management and Budget, when granting the renewal of the ATF 
Forms 1, 4, and 5, has determined that the cost of fingerprints and 
photographs is not an unreasonable burden. To the extent commenters 
have asserted that requiring responsible persons to submit fingerprints 
and photographs is more burdensome than the requirement for individuals 
because a trust or legal entity may have multiple responsible persons, 
the option exists for the applicants who have formed trusts or legal 
entities for the express purpose of acquiring NFA firearms to forego 
use of a trust or legal entity and acquire the NFA firearm in an 
individual capacity. The formation of a trust or legal entity is not 
required to purchase an NFA firearm. For corporate applicants, the 
costs associated with submitting fingerprints and photographs for 
responsible persons is a reasonable cost of doing business; for trusts 
or legal entities that acquire NFA firearms to allow multiple 
individuals to possess and use the same firearm (each of whom will 
therefore be a responsible person), the cost of submitting fingerprints 
and photographs for each of those persons is directly related to the 
statutory goal of ensuring prohibited persons do not possess and use 
NFA firearms.
    The Department also notes that, as has been explained elsewhere, 
the Department predicts that the rule's impacts on demand for NFA 
firearms will be minimal and the costs to trusts and legal entities 
will be low.
    The final rule also simplifies the process of acquiring an NFA 
firearm by eliminating the CLEO certification requirement for all 
applicants or transferees and replacing it with a less burdensome 
notification requirement. Similarly, the final rule has clarified the 
``responsible person'' definition to ensure it does not extend to all 
members of a trust or legal entity (e.g., by excluding from the 
definition corporate

[[Page 2705]]

shareholders who do not control the management or policies of the 
entity with respect to firearms).
c. Assessment of the NPRM Implementation Cost
Comments Received
    A commenter observed that the proposed rule will be expensive to 
implement for the firearms industry. Another commenter warned that ATF 
failed to take into account the fact that the proposed rule will also 
have an adverse financial impact on those who manufacture and sell or 
transfer NFA firearms. At least one commenter stated ATF failed to 
consider the significant revenue losses the proposed rule would impose 
on small businesses. Another commenter disagreed with ATF's assertion 
that the proposed rule will not affect small businesses. A commenter 
who works for a firearms business stated, ``[I] manage a small business 
that holds an FFL and deals in NFA devices. . . . All (100%) of our 
customers utilize legal entities to lawfully obtain NFA firearms. Since 
the proposed rule change our business in selling NFA firearms has 
dropped to zero as our customers do not want to spend money with the 
risk that they may not be able to take delivery of the NFA item. That 
drop translates into loss of revenue for my small business, 
distributors I buy from, manufacturers of the devices and manufacturers 
of related equipment.'' A commenter who is an employee of a silencer 
manufacturer stated that the proposed regulation will ``surely cripple 
if not disable our business.'' Finally, another commenter asked the 
question, ``what about the manufacturers and vendor of these controlled 
items who would inevitably lose a substantial amount of business?'' 
That commenter argued that it is foreseeable that businesses involved 
in the manufacturing and selling of NFA items will suffer from the 
implementation of the proposed regulation.
Department Response
    The Department believes that any impact on the firearms industry 
arising from the proposed rule will be insignificant. As noted, the 
CLEO certification requirement has been changed to a notification 
requirement, and the definition of responsible person has been 
clarified. These changes will ensure that the impact on the firearms 
industry is minimal. Applications postmarked prior to the 
implementation of the final rule will be processed under the current 
regulations. Only those applications postmarked on or after the 
implementation of the final rule will be subject to the new 
regulations. Therefore, individuals who refuse to purchase NFA items on 
the basis of their belief that the rule will interfere with their 
ability to complete the transfer process are mistaken.
d. Commenters' Assessments of Implementation Cost
Comments Received
    A commenter challenged ATF's assessment of the implementation cost 
of the proposed regulation, saying that ATF failed to assess the loss 
of revenue from several sources; this commenter continued that ATF 
failed to consider all of the monetary loss manufacturers, wholesalers, 
dealers, individuals, and ``corporate/trust'' entities will incur as a 
result of the proposed rule. This commenter argued that there will be 
``perceptional monetary loss'' as well. According to this commenter, 
when law abiding buyers perceive that the transaction will require CLEO 
certification that cannot be obtained in their area, the potential 
buyers will not attempt to buy the NFA items because they will believe 
the CLEO will not approve the sale. The commenter continued that this 
perception will ultimately lower the number of purchasers, thus 
creating a monetary loss for the NFA industry.
    A commenter stated that the proposed regulation does not adequately 
address the economic impact to small and medium businesses. This 
commenter stated that no assessment of this type could be valid without 
conservative assumptions on the number of lost sales due to these 
increased restrictions; these restrictions will have a significant and 
material impact on the number of silencers and other NFA items sold in 
the United States. This commenter stated that this is likely to cause 
many businesses (including large, medium, and small businesses) to 
close and would have a ``downstream ripple effect to their suppliers 
and local communities.'' At least one commenter asked the following 
questions: ``can you imagine the damage this will cause to the NFA 
market? What happens to the value of our items when you indirectly 
prohibit 90 percent of potential customers from obtaining the item? 
What happens to the R&D budget for our arms manufacturers when they 
don't sell anywhere near the volume to their most abundant customer 
base?''
    Another commenter noted that ATF failed to identity the cost 
associated with lost time from the backlog of applications for both 
existing and future employees of any company. Another commenter stated 
the proposed rule will have a considerable and obvious negative impact 
on the industry by stifling sales and adding significant burdens 
relating to long term secure storage of pending NFA items. Another 
commenter stated that the proposed rule will decimate the industry that 
makes these NFA products for the military and the police because the 
NPRM will put these companies out of business, making product 
warranties that the military and police rely on invalid.
Department Response
    The Department agrees that CLEO certification for all responsible 
persons of trusts or legal entities is not necessary; consequently that 
requirement has been eliminated in this final rule and replaced with a 
less burdensome notification requirement. The change from certification 
to notification will reduce the impact on the firearms industry. The 
Department believes that the impact on demand for NFA firearms arising 
from the rule will be slight. Please see section IV.E.2.a above for 
additional detail regarding the Department's response to claims this 
rule will negatively impact NFA manufacturers, dealers, and related 
businesses.
    The Department does not agree with the commenters who assert that 
the proposed rule would have a negative effect on NFA firearms 
suppliers to the military and police. Government entities are exempt 
from the requirements in the rule and therefore neither the NPRM nor 
the final rule affects this industry. Moreover, because the impact of 
the rule on the market for NFA firearms will be slight, the Department 
does not anticipate that military and police suppliers will go out of 
business as a result of the rule.
    The Department recognizes that the final rule will affect 
processing times and is implementing processes to keep the impact to a 
minimum. However, processing times do not appear to reduce the demand 
for NFA firearms. ATF received more than ninety thousand applications 
in 2014 when processing times were approximately nine months.
3. Quantification of the Rule's Expected Benefits
Comments Received
    Several commenters noted that the proposed rule provided only three 
``anecdotal'' examples occurring over the 80-year life of the NFA to 
support the need for the proposed rule; they asserted that these 
examples failed to quantify any expected benefits, raised many 
questions, and could just as

[[Page 2706]]

strongly justify a claim that the current procedures are working. Two 
commenters stated that ATF likely did not quantify any benefits or 
assign an economic value to such benefits because the NPRM 
predominantly addressed conduct already criminalized and prohibited by 
statute and regulations, and also noted that none of ATF's examples 
illustrated or supported the problem that ATF speculated existed. Many 
commenters stated that the proposed rule presented no benefit to public 
safety or to ATF's ability to execute its responsibilities relating to 
the NFA. Several commenters stated that the overall benefits were 
inconclusive, nonexistent, and insignificant. A few commenters stated 
that simply speculating as to some ``marginal'' benefit without 
estimating the size or value of that benefit made a ``charade'' of the 
rulemaking process, and asserted that a ``rather unlikely combination 
of circumstances'' would need to exist for the rule to produce any 
benefits at all. Another commenter believed changes were needed to the 
current regulations; however, this commenter stated that the changes 
should actually balance implementation costs with the desired effect. 
Another commenter wanted more specifics, and asked, ``[w]hat are the 
metrics of success for this proposed rule? How many lives will it save 
for the cost of actual implementation using the numbers I provided [for 
responsible persons] rather than the (no offense) ludicrous number of 
`2' propounded by ATF?'' Another commenter asked if ATF could show how 
these proposed changes would improve public safety, and how the NFA's 
current rules are unsafe.
    Other commenters stated that the problems with the proposed rule 
far outweigh any perceived benefits. One commenter acknowledged the 
benefit of increasing public safety by preventing prohibited persons 
from obtaining firearms, but requested that ATF expand its explanation 
of the benefits the proposed revisions would deliver. This commenter 
stated that this additional information on benefits would be useful 
when considering and offsetting the increase in costs from the proposed 
rule.
    Several commenters stated that ATF's assumptions lacked statistical 
validity. Other commenters stated that the proposed rule lacked 
evidence to support the proposition that the proposed changes were 
needed to enhance safety by preventing criminal use of highly regulated 
NFA items. A commenter asked ATF to provide statistical evidence that 
the proposed rule would reduce violent crime, and to provide a list of 
all violent crimes committed with registered NFA weapons by the actual 
owner of the firearm where these proposed changes would have deterred 
the crime. Another commenter similarly asked for current statistics on 
crimes committed by NFA weapons, and how the proposed rule would make 
citizens safer. This commenter also asked for the studies that ATF did 
``in conjunction with this legislation,'' and asked ATF to provide the 
studies and specific statistics that support the proposed regulations. 
Another commenter asked if ATF's three provided examples represent the 
only examples that ATF has identified since the origin of the NFA in 
1934. This commenter requested that ATF clarify its analyses used to 
support a public safety benefit for the proposed rule since this 
commenter, and many others, contend that there is no documented violent 
criminal activity associated with NFA firearms. These commenters noted 
that the proposed rule would not have applied to the few rare 
occurrences of violent crime with legally owned NFA registered 
firearms, as those activities were committed by a non-prohibited person 
in possession of a properly registered NFA item. Another commenter 
asked ATF to have ``an unbiased third party'' show a real risk to 
public safety through past harms from the use of NFA items acquired via 
a living trust or legal entity, as well as project future risk trends 
from the use of such items.
    Another commenter referenced a 2001 survey of inmates that showed 
that less than two percent of inmates used semi-automatic or fully 
automatic rifles to commit their crimes. This commenter contended that 
the proposed rule's effect of ``tightening restrictions on law abiding 
citizens'' would not reduce this rate, and that ATF did not need to 
``pass greater legislation to reduce the access of law abiding citizens 
to weapons and accessories which are registered, carefully monitored, 
and taxed.''
Department Response
    Between 2006 and 2014, there were over 260,000 NFA firearms 
acquired by trusts or legal entities where no individual associated 
with the trust or legal entity was subject to a NFA background check as 
part of the application process. NFA firearms have been singled out for 
special regulation by Congress because they are particularly dangerous 
weapons that can be used by a single individual to inflict mass harm. 
The Department does not agree that a mass shooting involving an NFA 
firearm obtained by a prohibited person through a legal entity must 
occur before these persons must be subject to a background check.
    The GCA, at 18 U.S.C. 922(t)(1), requires FFLs to run a NICS check 
``before the completion of the transfer'' of a firearm, and verify the 
identity of the transferee. There is a limited exception under 18 
U.S.C. 922(t)(3)(B) when a firearm is transferred ``between a licensee 
and another person . . . if the Attorney General has approved the 
transfer under section 5812 of the Internal Revenue Code of 1986.'' The 
purpose of this exception is to avoid multiple background checks on the 
same individual by exempting a person from a NICS check at the point of 
transfer when that same person has already been the subject of a 
background check during the NFA registration process. Congress did not 
intend for NFA firearms to be transferred to individuals who avoided 
the background check process altogether. Between November 30, 1998, and 
August 31, 2015, the FBI's Criminal Justice Information Services 
Division conducted 216,349,007 background checks using NICS. Of the 
background checks conducted during this time period, 1,229,653 resulted 
in a denial. The 99.4 percent ``proceed'' rate does not negate the 
public safety associated with the 0.6 percent denied. While the number 
of NFA applications that are denied due to the background check is 
small, because even one prohibited individual with an NFA firearm poses 
an enormous risk to the lives of others, that small number does not 
negate the public safety associated with denying a prohibited person 
access to an NFA firearm. Furthermore, requiring a background check on 
responsible persons of trusts and legal entities during the application 
process is consistent with Congressional intent for these individuals 
to undergo a background check to be eligible for the limited exception 
under 18 U.S.C. 922(t)(3)(B).
    Additionally, even though 70 percent of all crime gun traces are on 
handguns, Federal law (18 U.S.C. 922(t)) requires FFLs to conduct 
background checks prior to the transfer of long guns (rifles and 
shotguns) as well as handguns (pistols and revolvers) to unlicensed 
persons. Thus, Congress did not intend to exclude certain types of 
firearms from background checks simply because those firearms may be 
less frequently involved in criminal activity. The Department does not 
agree that further research is needed to show that a responsible person 
for a legal entity purchasing a machinegun should be subject to a 
background check. There is a tangible risk to public safety whenever

[[Page 2707]]

a prohibited individual has the power to exercise control over an NFA 
firearm. For additional responses to comments on public safety see 
section IV.B.1, which specifically addresses the sufficiency of current 
regulations.
    See sections IV.E.1.a and E.1.b for responses to comments on the 
methodology for determining the number of responsible persons and 
number of pages of supporting documents. See section IV.D.1 regarding 
responses to comments on Executive Order 12866.

F. Comments on Rulemaking Process

1. Availability of Background Information
Comments Received
    A commenter stated that ATF did not make the NFATCA petition 
available for public inspection at any time before or during the public 
comment period for ATF 41P. This commenter noted that ATF cited the 
NFATCA petition as its basis for the NPRM, and that the petition formed 
the ``central and critical foundation'' of ATF's argument for the 
proposed changes. Noting that ATF did not explain why it withheld this 
vital information, this commenter called ATF's lack of transparency 
inexcusable, and stated this inaction warrants further investigation 
and clarification by ATF.
    Another commenter stated that the NPRM indicated that the proposal 
rested on certain studies and other underlying information, but that 
such underlying documents (seven categories, including the rulemaking 
petition; alleged ``numerous statements'' from CLEOs that ATF received 
regarding ``purported reasons'' for denying CLEO certifications, 
details regarding the instances that prompted the decision that the 
regulation was needed; and the methodology employed in random samples 
to estimate the number of responsible persons and the documentation 
pages) were not placed in the rulemaking docket and, thus, the 
commenter had requested such documents (and any other documents that 
ATF replied upon when preparing the NPRM) ``[i]n order to ensure an 
adequate opportunity to comment on the ATF proposal.'' The commenter 
asserted that ATF declined to make public the requested information, 
and that ATF neither posted materials to the eRulemaking site, nor made 
them available in ATF's reading room. The commenter also requested the 
documents via a Freedom of Information Act (FOIA) request without 
receiving such documents. The commenter stated its concern that 
omitting these items raised the question of what other pertinent 
materials may have been excluded. The commenter quoted several legal 
cases explaining that interested parties should be able to participate 
in a meaningful way in the final formulation of rules, which would 
require an accurate picture of the agency's reasoning, which should be 
done with the agency providing the data used and the methodology of 
tests and surveys relied upon to develop the NPRM. The commenter 
continued that case law provides that an agency commits serious 
procedural error when it fails to reveal the basis for a proposed rule 
in time to allow for meaningful commentary. Thus, the commenter 
reasoned that providing access to materials like those it requested has 
long been recognized as essential to a meaningful opportunity to 
participate in the rulemaking process. The commenter concluded that the 
lack of access to the requested materials hindered the ability of 
interested persons to address the assertions in the NPRM, and that if 
ATF intends to revise part 479 in the manner proposed, ATF should first 
lay the foundation for a proposal and then expose that foundation to 
meaningful critique.
Department Response
    In response to the assertion that the Department withheld the 
NFATCA petition, the Department references section II of the NPRM that 
details each of NFATCA's four categories of concern--amending 
Sec. Sec.  479.63 and 479.85; certifying citizenship; providing 
instructions for ATF Forms, 1, 4, and 5; and eliminating the CLEO 
certification requirement. 78 FR at 55016-55017.
    The NPRM explained those aspects of the NFATCA petition that were 
relevant to the rulemaking. The Department provides the following 
excerpt from section II.A of the NPRM:

    The NFATCA expressed concern that persons who are prohibited by 
law from possessing or receiving firearms may acquire NFA firearms 
through the establishment of a legal entity such as a corporation, 
trust, or partnership. It contends that the number of applications 
to acquire NFA firearms via a corporation, partnership, trust, or 
other legal entity has increased significantly over the years. ATF 
has researched the issue and has determined that the number of Forms 
1, 4, and 5 involving legal entities that are not Federal firearms 
licensees increased from approximately 840 in 2000 to 12,600 in 2009 
and to 40,700 in 2012.

This passage illustrates, with complete transparency, how ATF 
approached and researched the rulemaking process. Such detail not only 
lays ``the foundation for a proposal'' but also exposes ``that 
foundation to meaningful critique.'' Moreover, the NFATCA petition was 
readily available through the internet. Thus, all relevant aspects of 
the NFATCA petition that were used in the development of the proposed 
rule were available to commenters and clearly discussed in the NPRM.

    In response to the commenter who indicated that ATF did not provide 
certain documents related to seven categories of information that the 
commenter deemed essential to meaningfully commenting on the rule, the 
Department acknowledges that ATF received requests for disclosure of 
the information from the commenter. Those requests were processed by 
ATF's Disclosure Division and a copy of the NPRM was provided to the 
commenter in response to the commenter's request. The response did not 
include the requested seven categories of information. The Department 
believes, however, that all of the requested information was discussed 
and addressed in the NPRM to a degree sufficient to provide the 
commenter with the opportunity to participate in a meaningful way in 
the discussion and final formulation of the final rule. The Department 
did not rely on any data, methodologies, predictions, or analysis that 
it did not clearly explain in the NPRM. The Department provided 
commenters ``an accurate picture of the reasoning that . . . led the 
agency to the proposed rule'' and ``identif[ied] and ma[de] available 
technical studies and data that it . . . employed in reaching'' its 
decisions. Connecticut Light & Power Co. v. NRC, 673 F.2d 525, 530-31 
(D.C. Cir. 1982).
    For example, the Department explained the source and number of 
samples it used to determine the average number of constitutive 
documents and responsible persons at trusts and legal entities. The 
Department cited and relied upon the NFATCA petition that prompted the 
rulemaking. The Department gave examples of instances in which 
background check requirements were nearly evaded to show that a risk of 
circumvention existed. The Department openly discussed the benefits and 
drawbacks of the CLEO certification requirement and its proposed 
expansion. Further, specific details about public safety concerns, 
including specific instances, were included in the NPRM. The Department 
believes that the details provided in the NPRM were sufficient and, as 
such, no additional information needed to be placed in the docket.
    With respect to CLEO certification specifically, the Department 
believes that the NPRM amply conveyed ATF's

[[Page 2708]]

knowledge of various reasons that CLEOs deny CLEO certifications. This 
is knowledge gained from the field and interactions that the NFA Branch 
has had with CLEOs, as well as with applicants and transferees, during 
the application process and at other times. In any event, the 
Department notes that any failure in this regard caused commenters' no 
prejudice, as the Department was persuaded to change the CLEO 
certification requirement to a notice requirement. See Am. Radio Relay 
League, Inc. v. FCC, 524 F.3d 227, 236-37 (D.C. Cir. 2008).
    Finally, the Department emphasizes that it remained open to 
persuasion throughout the rulemaking. In response to comments critical 
of the CLEO certification requirement, the Department adopted a CLEO 
notification requirement. In response to comments critical of various 
aspects of its statutory and regulatory review and its cost-benefit 
analysis, the Department expanded and strengthened its analysis and 
revised its estimates where appropriate. The Department believes that 
the analysis and responses to comments in this preamble conclusively 
show that commenters were provided a meaningful opportunity to support, 
challenge, and critique the proposed rule and help to shape the 
Department's decision.
2. Public Submissions
a. ATF Posted Unrelated Materials to the Docket During the Public 
Comment Period
Comments Received
    A commenter noted that ATF posted an unrelated final rule in the 
docket for this NPRM at www.regulations.gov, and asked ATF to remove 
it. This same commenter noted that two weeks after the comment period 
opened for this NPRM, ATF's Web site entitled ``ATF Submissions for 
Public Comments'' also contained references to two unrelated matters, 
and requested this be clarified. This commenter expressed concern that 
this ``extraneous material'' confused the public to think that the 
comment period for ATF 41P had ended, and referenced MCI 
Telecommunications Corp v. FCC, 57 F.3d 1136 (D.C. Cir. 1995).
Department Response
    The Department is unaware of any ``extraneous material'' in the 
docket. A Department review of the www.regulations.gov site reveals 
that there are no documents to support this comment included in this 
docket. The only document available is the subject NPRM. The Department 
also notes that on its public Web site, ATF's link to ``ATF's 
Submissions for Public Comment'' directs users to the Bureau's FOIA 
library, with resources appropriate to a full array of regulatory and 
policy issues.
b. ATF Failed To Accept or Post Public Comments
i. ATF Failed To Include ``Pertinent'' Submissions to the Docket
Comments Received
    A commenter stated that ``ATF has a statutory duty to provide 
public access to members of the public and where . . . access is denied 
during the very period when the public are supposed to be able to 
investigate matters as a basis for submitting comments on a proposed 
rule, ATF has denied a meaningful opportunity to participate in the 
notice and comment rulemaking process.'' The commenter expressed 
concern regarding the closure of the reading room from November 8, 
2013, until November 15, 2013, while ATF was open. The commenter 
questioned how such a closing was consistent with ATF's duty under 
FOIA. The commenter also expressed concern that ATF mandated that 
counsel for commenter submit documentation regarding race, ethnicity, 
employment history, and other matters before ATF would permit access to 
its reading room.
    This same commenter stated that it physically inspected the docket 
at ATF's reading room, but that it appeared that only the public 
comments were available for review. The commenter expressed concern 
that the physical inspection of the docket also revealed that ATF had 
``selectively excluded correspondence clearly related to the rulemaking 
proceeding.'' The commenter stated that it identified six items that 
had not been entered into the docket and requested that all pertinent 
material be placed in the docket. One such item was posted, but the 
other five referenced items were not added to the docket prior to 
commenter's second physical inspection of the docket. The commenter 
stressed concern that ATF either delayed posting items or ignored its 
requests.
Department Response
    The Department notes that on September 12, 2013, ATF posted the 
first comment relative to this NPRM on www.regulations.gov. ATF posted 
the final comment on February 7, 2014. In total, ATF posted 8,433 
comments out of 9,479 received. Given the volume of comments and the 
resources available to ATF, the Department contends that ATF strived to 
post all comments that met the criteria in the Public Participation 
section of the NPRM (78 FR at 55025) in the order they were received 
and reviewed. For this final rule, all comments received are included 
in the final rule's administrative record.
    Regarding the commenter's portrayal of ATF's reading room being 
closed November 8, 2013, until November 15, 2013, this is not accurate. 
The Department acknowledges that a few days elapsed between the 
commenter's request and his counsel gaining access to ATF's reading 
room. Regarding the commenter's concern that ATF requested that his 
counsel provide certain documentation before gaining access to the 
reading room, ATF notes that this documentation is part of its standard 
procedures that have been implemented to address public safety concerns 
and does not meaningfully interfere with access to all of the materials 
available in the ATF reading room.
ii. ATF Failed To Permit a 90-Day Public Comment Period
Comments Received
    A commenter pointed out problems inhibiting access to public to 
public comments through, for example, (1) the reading room being 
unavailable, (2) the www.regulations.gov site malfunctioning, (3) the 
government closure, (4) ATF's slowness to post submitted comments, and 
(5) ATF's staffing. This commenter previously requested that ATF extend 
the comment period, and noted that other commenters made similar 
requests to ATF. This same commenter also noted that others raised 
concerns about ATF's delay in posting comments to the docket. This same 
commenter stated that other agencies granted extensions of comment 
periods due to the government shutdown. Several commenters requested an 
extension for public comment by at least one day for each day that 
either ATF was closed or the www.regulations.gov site was inaccessible.
Department Response
    The Department determined that an extension of the 90-day comment 
period was not warranted because it had received a large volume of 
diverse comments and additional time was unlikely to result in the 
submission of comments identifying new concerns. Many of the comments 
ATF received were a repetition or duplication of previous comments. 
Further, using all resources available, ATF followed the guidelines for 
public participation that appeared in the NPRM and posted ``All 
comments [that referenced] the docket

[[Page 2709]]

number (ATF 41P), [were] legible, and [included] the commenter's name 
and complete mailing address.'' The www.regulations.gov Web site is 
maintained by the Environmental Protection Agency. Neither the 
Department nor ATF has control of the functionality of an external 
agency's Web site.
iii. ATF Selectively Delayed Reviewing and Posting Comments Received
Comments Received
    A commenter noted ATF's delays in posting comments and that the 
delays were not uniform. This commenter contended that ATF 
``conveniently'' delayed the posting of the comment the commenter 
prepared for another individual, which critiqued flaws in the NPRM, 
while ATF simultaneously ``apparently seeded the docket with 
submissions from proxies.'' The commenter stated that once the comment 
it prepared for another individual was posted, the cause for delays in 
posting comments, in general, was ameliorated and that comments were 
continually posted. This commenter also expressed concern that ATF 
continued to exclude its submissions or delayed posting them to the 
docket while processing correspondence and comments from other 
interested persons, which raised a question regarding ``what other 
material submitted for the docket by other interested persons was not 
properly posted.'' The commenter stated that its communications to ATF 
regarding the rulemaking only occasionally received a reply, only 
sometimes were placed in the docket, and only sometimes were posted 
promptly. Despite commenter's inquiries, ATF declined to provide any 
explanation for the ``seemingly arbitrary management of the docket.''
    Another commenter stated that ATF repeatedly delayed posting 
comments, and that this significantly impacted his ability to 
meaningfully participate in the comment process. This commenter 
observed that well past the government shutdown, 25-50 percent of the 
comments received had not been posted; during other periods when the 
government was not shutdown, four or five days passed without ATF 
posting any comments even though the total comments received increased 
every day.
Department Response
    The Department stresses that it posted all comments that followed 
the public participation guidelines in the NPRM. ATF followed its 
processes for reviewing and posting comments.
iv. ATF ``Distorted'' the Public Comment Process by ``Apparently 
Submitting Hearsay Information via Proxies''
Comments Received
    A commenter stated that ATF had proxies submit comments ``in an 
effort to bolster the suggestion of prior misuse of legal entities'' 
and listed examples of comments from ATF Special Agent Gregory Alvarez 
and John Brown, President of NFATCA. This commenter stated that ATF did 
not disclose its relationship with John Brown or reveal that the only 
information John Brown offered in his public comment is ``what ATF 
leaked to him.''
Department Response
    Neither the Department nor ATF uses or recruits ``proxies.'' Both 
the Department and ATF are committed to a robust, candid rulemaking 
process and have an interest only in authentic public comments.
v. ATF's Previous ``Lack of Candor'' Shows a Heightened Need for 
Procedural Regularity
Comments Received
    A commenter stated that ATF has a well-documented record of 
``spinning'' facts and engaging in outright deception of the courts, 
Congress, and the public. As a result, this commenter believes there is 
even more reason for ATF to provide the documentation showing its basis 
for characterizing the issues in the NPRM, that it fairly considered 
alternatives, that it only inadvertently provided potentially 
misleading information or omitted pertinent information from the 
docket, that it only accidentally failed to consider requests for 
extension of the comment period, and that it had no knowledge that 
commenters with a connection to ATF would act to bolster ``ATF's 
unsupported assertions.''
    The commenter purported to provide instances where: (1) ATF 
committed blatant ``institutional perjury'' in the context of criminal 
prosecutions and in support of probable cause showings for search 
warrants; (2) ATF delayed answering questions or provided deceptive 
answers to congressional inquiries about NFRTR inaccuracies and the 
``Fast and Furious'' gun-walking operation, for example, and published 
proposed rules in flagrant disregard to limitations on appropriations; 
and (3) ATF misled the public about the accuracy of the NFRTR.
Department Response
    The Department notes that ATF has committed available resources to 
develop this NPRM and respond to comments as part of the rulemaking 
process. In developing this rulemaking and responding to comments, ATF 
has followed all established regulatory procedures and complied with 
all relevant policies and requirements.
3. Timetable for Final Rule
Comments Received
    A commenter identified prior communications with ATF employees in 
August 2013, prior to the proposed rule's publication in September 
2013, regarding whether a rule finalizing the proposed changes in the 
NPRM would only apply to applications submitted after the effective 
date of the regulation, and stated that these communications indicated 
that such would be the case. However, this commenter stated that the 
text of the proposed rule was not clear on this matter and ATF had 
``needlessly confused the public'' and potentially falsely reassured 
persons interested in filing comments. This commenter noted that 
several commenters expressed concern with the ``grandfathering'' or 
transition issues. A few commenters specifically asked whether ATF 
would grandfather any trusts or legal entities where the applications 
have been sent in, the $200 tax stamp check has been cashed, and the 
application is ``pending'' prior to the effective date of the final 
rule. A few commenters asked what would happen to pending or ``in 
limbo'' applications, and if the applications would be sent back to the 
applicants. Several commenters suggested--or would want to ensure--that 
ATF ``grandfather in'' (i.e. not apply the requirements of the final 
rule to) all applications already submitted. A commenter stated that 
ATF could just as likely grandfather the pending applications as reject 
them on the grounds that they were not submitted on a new form. If ATF 
does not grandfather these applications, another commenter asked how 
ATF would handle them, and about the involved costs. Another commenter 
asked if the pending applications would have to be resubmitted, and if 
so, whether they would go to the back of the line for processing. 
Another commenter specifically asked whether ATF would refund the 
transfer tax for the applications pending approval. A few commenters 
asked about retroactive changes to previously completed transfers. 
Another commenter urged ATF to publish a notice clarifying that ATF has 
no intent to return pending applications to applicants for resubmission 
to conform with any new regulation.

[[Page 2710]]

    A few commenters asked if existing legal entities and trusts 
holding NFA items must submit to ATF fingerprints, photographs, and 
CLEO certifications for each responsible person or if they would be 
grandfathered. Another commenter pointed out that the proposed rule did 
not provide a cost estimate to bring the ``many thousands'' of existing 
trusts and corporations into compliance with the new rule, and 
therefore surmised that past transfers would be grandfathered. If this 
is not the case, this commenter suggested that ATF publicly disclose 
such a cost estimate. This commenter stated that it could take months 
for a large corporation, which routinely purchases and sells NFA 
weapons, to establish policies and bring the entire workforce into 
compliance. This commenter asked whether employees who have been 
approved as responsible persons could continue conducting business 
while other employees were pending approval as responsible persons, and 
presumed that ATF would answer affirmatively. Finally, this commenter 
asked if ATF has estimated, even internally, the ATF staffing level and 
expansion of staff required to implement these new rules considering 
that the current wait time for Form 4 transfers and Form 3 (dealer to 
dealer) transfers is six to nine months, and three months, 
respectively, and the proposed rule, if finalized, would result in a 
``likely substantial'' additional workload for ATF.
Department Response
    The final rule is not retroactive and therefore the final rule will 
not apply to applications that are in ``pending'' status, or to 
previously approved applications for existing legal entities and trusts 
holding NFA items. The Department has considered the additional costs 
to ATF as a result of this rule, which are detailed in section VI.A 
below.
4. Commenters Urge ATF To Withdraw Proposed Rule and Request a Public 
Hearing
    Several trade association commenters, as well as individuals, 
encouraged ATF to withdraw the proposal. One of these commenters, a 
trade association, suggested that ATF work with makers, sellers, and 
users of NFA firearms to develop a rule that is more realistic and 
addresses the real needs of all those concerned. Another trade 
association urged ATF to withdraw or substantially rewrite the rule. 
Both trade associations requested that ATF hold a public hearing to 
ensure that all views and comments are fully heard. An individual 
commenter requested a hearing, or series of hearings around the 
country. In addition, another of these commenters advised ATF to focus 
on streamlining the NFA application process and reducing the stress on 
local law enforcement.
Department Response
    The Department does not believe that soliciting additional 
information and views from the public, either through informal meetings 
to further refine the scope of the rulemaking, or through public 
hearings, are necessary or appropriate.
    The Department notes that the proposed rule included four direct, 
clear objectives:
    1. Defining the term ``responsible person,'' as used in reference 
to a trust, partnership, association, company, or corporation;
    2. Requiring responsible persons of such legal entities to submit, 
inter alia, photographs and fingerprints, as well as a law enforcement 
certification, when filing an application to make an NFA firearm or 
function as the transferee on an application to transfer an NFA 
firearm;
    3. Modifying the information required in a law enforcement 
certification to relieve the certifying official from certifying that 
the official has no information indicating that the maker or transferee 
of the NFA firearm will use the firearm for other than lawful purposes; 
and
    4. Adding a new section to ATF's regulations stipulating that the 
executor, administrator, personal representative, or other person 
authorized under State law to dispose of property in an estate may 
possess a firearm registered to a decedent during the term of probate 
without such possession being treated as a ``transfer'' under the NFA, 
and specifying that the transfer of the firearm to any estate 
beneficiary may be made on a tax-exempt basis.
    ATF received nearly 9,500 responses from diverse public commenters, 
including professional associations, lobbying groups, and individuals, 
and the Department has afforded full consideration to these comments in 
formulating this final rule. Further, the Department's receipt and 
review of this volume of comments provides the Department with a 
complete array of comments likely to arise in a public hearing, making 
additional public events redundant. A public hearing, or even a series 
of them, will only serve to provide the Department information it has 
already collected without delivering new insights.

G. Comments on NFA Registration and Processing

Comments Received
    Many commenters stated that there is nothing wrong with the current 
system, and believed that the only change needed is to speed up the NFA 
approval process. Many remarked on the huge backlog of pending NFA 
applications and that it takes months to well over a year for the NFA 
Branch to process Form 1 and Form 4 applications. A commenter thought 
that speeding up the process was especially essential for a person 
trying to register a second item. Several commenters stated that if ATF 
and the Department really wanted to improve the NFA process, they 
should modernize the current process and upgrade their systems to 
permit electronic forms that need to be filled out only once, and 
``upgrade systems'' and utilize technology so that after the initial 
NFA approval, ATF could access and use ``data'' and ``background 
checks'' already on file to further speed up the process for subsequent 
transfer requests.
    Several commenters stated that ATF needed to hire more people 
(e.g., agents, inspectors, examiners, processors) to process the 
applications more efficiently. A few other commenters requested that 
more funding be given to ATF to hire additional staff; another 
commenter suggested that ATF figure out how to use the tax stamp money 
for this purpose. Several commenters believed that the NFA Branch is 
already overworked and understaffed, and that the proposed rule change 
would exponentially increase its workload and cause approval wait times 
to further increase. A commenter stated that the proposed rule's 
requirements would cause a ``912% increase in the number of papers and 
forms'' the NFA Branch has to process, and that increasing its workload 
more than nine times translates to wait times approaching a decade. One 
of these commenters stated that, at one time, Form 1 and Form 4 
applications took less than 3 months from submission to approval; 
however, in the past several years, the workload has increased 
resulting in dramatically slower approval times. Another of these 
commenters noted that ATF's own Web site shows that ``NFA applications 
increased 250% from 2005 to 2011, while the number of NFA examiners 
decreased 25%.'' This commenter contended that ATF is not meeting its 
``customer service'' goals. Another commenter stated that ATF should 
address and correct its internal deficiencies before proposing 
regulatory changes that will only exacerbate

[[Page 2711]]

administrative challenges, without enhancing public safety at all.
    Another commenter stated that the process should only take a few 
days at most to process instead of the current ``months'' processing 
time. Another commenter suggested that ATF implement a maximum approval 
time of 30 days, and that if ATF has taken no action in that time, the 
application should be automatically approved. Another commenter 
suggested that the process be no longer than three months by default.
    In addition to their suggestions on speeding up the process, a few 
commenters suggested that ATF decrease the tax stamp costs. A commenter 
asked, ``if I have an individual tax stamp why do I have to pay again 
to move it to a trust that I set up?'' Another commenter suggested that 
ATF draft new regulations to change the tax stamp costs for all NFA 
items from $200 to $5. Another commenter suggested that ATF either 
reduce the $200 tax stamp cost to $50 or eliminate it altogether. 
Another commenter added that a reduction of the tax stamp cost would 
increase ATF's revenues and the ``tax basis'' of the firearms industry.
Department Response
    The Department and ATF are committed to processing NFA forms as 
efficiently and expediently as possible considering that an ever-
increasing number of forms are submitted. In FY 2010, ATF's NFA Branch 
processed almost 92,000 forms (Forms 1, 2, 3, 4, 5, 9, 10, and 
5320.20). In FY 2014, the number of forms processed increased to over 
236,000, an increase of 250 percent. As a result of this increase, ATF 
has dedicated more staffing to the NFA Branch, increasing the number of 
legal instruments examiners from 9 to 27. Research assistants were 
provided to the examiners to research and resolve problems. Data entry 
staffing has been increased. Similarly, customer service representative 
staffing has been increased so that examiners are not pulled away from 
their tasks, and can respond quickly to the public and industry.
    ATF has approved overtime in an effort to increase the forms 
processing rate and has brought in staffing on detail to process forms. 
In February 2014, the forms backlog was over 81,000 forms. As of 
October 7, 2015, the backlog has been reduced to just over 51,000. The 
time frame for the processing of each type of form has also decreased 
(note: since each form has a different purpose, the processing times 
vary). Processing times for Forms 1 and 4, for example, have been 
reduced from nine months to approximately five months.
    ATF has used technology to help make the process quicker and more 
efficient. In 2013, ATF introduced an electronic filing system (eForms) 
designed to allow forms to be filed more accurately, and more quickly, 
with immediate submission into the NFA system for processing. This 
reduces data entry demands otherwise required with paper forms. The 
eForms system, however, was not designed to allow the filing of forms 
where fingerprints, photographs, and the law enforcement certification 
were required. However, it did allow the filing of forms by trusts or 
legal entities, such as LLCs. After several months of operation, the 
system encountered complications. It was taken out of service for a 
brief period and then brought back up over a period of time. To 
preclude further complications, the highest volume forms submitted, 
Forms 3 and 4, have been kept out of service while ATF seeks to 
implement a new system with a more robust platform to process these 
forms and others in the existing eForms system. This process continues 
at the present time.
    Some commenters stated that ATF should modernize the process and 
utilize technology so that data and background checks can be used for 
subsequent transfer requests. The Department agrees and, resources 
permitting, will look to design systems that will utilize information 
on file.
    Budget allowing, the Department and ATF anticipate a staffing 
increase for the NFA Branch in FY 2016. As stated above, over the past 
two years, ATF has committed additional resources to address the 
increase in applications submitted to the NFA Branch. The legal 
instrument examiner staffing has been tripled to 27 positions. However, 
the rate of submission continues to increase from almost 164,000 forms 
in CY 2013, to 236,000 in CY 2014 and a projected total of 322,000 in 
CY 2015.
    Because the tax rate is set by statute, ATF has no authority to 
change it. The NFA provides very limited authority to permit exemptions 
from the transfer tax, but commenters' requested exemptions do not fall 
within that authority. ATF is also precluded by law from utilizing the 
taxes generated, as the making, transfer, and special (occupational) 
tax revenues are deposited into a general Treasury fund. In regard to a 
transfer between an individual and a trust, the NFA imposes a tax on 
the transfer of an NFA firearm. A trust is a separate ``person'' and, 
thus, the transfer from the individual to a trust is a taxable 
``transfer'' under the statute and is subject to tax.

H. Comments on Efficiencies and Priorities

Comments Received
    The majority of commenters thought that the proposed rule would do 
nothing to lessen crime and gun violence and suggested that ATF first 
focus its efforts in other directions. A few commenters stressed 
educating children about gun safety, and stated that this could be done 
by parents and not on a Federal level. A few commenters urged the 
reduction or elimination of gun-free zones. A few commenters suggested 
that gangs are a problem for gun violence and crime, and that more time 
be spent addressing the causes of gang violence. Other commenters 
mentioned ``Operation Fast and Furious'' and suggested that ATF focus 
on ``clean[ing] up [its] own house before attacking lawful gun 
owners.''
    Several commenters believed that mental health issues greatly 
needed more attention, including more accessible and affordable 
resources and better screening, with commenters calling the mental 
health system ``crippled'' and a ``failure.'' A few commenters noted 
that the problem in the most recent mass gun murders has been mental 
health, and that the focus of prevention efforts should be on the 
``unrestricted mental capacity'' of citizens who cannot understand and 
obey laws, not the tool (firearms) used in the crime. A commenter 
suggested that the Department devote time and efforts to enact 
regulations for mental health; another commenter suggested working on 
the ``mental health aspect'' of people obtaining firearms. Another 
commenter suggested that gun purchasers take a mental exam. Another 
commenter suggested spending money to educate people about the signs of 
severe mental illness. Another commenter desired a national database, 
consisting of criminal offenders and mental health patients, released 
to each State's police force and the FBI.
    Many commenters also stated that the administration, the 
Department, and ATF should better enforce the laws already on the 
books, modify the current NICS instant check system to include mental 
health mandatory reporting, stiffen penalties, and stop handing out 
plea deals to people who violate the laws. Another commenter noted the 
items listed in the NFA constitute less than one percent of all firearm 
felonies, and questioned why ATF would go after the ``smallest portion 
of a problem.'' This commenter suggested that ATF go after the 
criminals and not law-abiding citizens. Another commenter suggested 
that ATF focus on repeated felonies.

[[Page 2712]]

Another commenter questioned where ATF would obtain the funding for the 
additional checks of NFA applications, and suggested applying this 
funding source toward improving efficiency and reducing the six- to 
eight-months-plus backlog of existing applications.
    Another commenter suggested that an NFA passport book be issued to 
each individual or trust that has completed an NFA background check. 
This passport book would be presented after paying the tax, at the time 
of the item's purchase. A stamp would immediately be placed in the 
passport book and the customer could leave with the purchased item. 
This commenter added that the check would then be mailed to ATF, and 
ATF could conduct yearly audits to regulate the passport books.
Department Response
    The Department's ultimate objective in the promulgation of this 
final rule is to enhance public safety by ensuring prohibited persons 
do not possess and use NFA weapons-- the primary statutory goal of the 
NFA. Contrary to the comments submitted suggesting otherwise, the 
objective of this final rule complements, rather than detracts from, 
the numerous other public safety efforts that the Department and ATF 
engage in every day.
    With the numbers of transactions involving trusts or legal entities 
increasing, the Department believes the possibility of a prohibited 
person obtaining an NFA firearm also increases. For example, currently, 
it is possible that one or more responsible persons at a trust or legal 
entity are prohibited persons, yet that person could obtain access to 
an NFA firearm by having someone at the trust or legal entity who is 
not a prohibited person serve as the subject of the point-of-transfer 
background check. As noted above, the costs to ATF are detailed in 
section VI.A, below. ATF is dedicating resources to the processing of 
the forms currently submitted, and will continue to apply resources to 
ensure improvements in the process.
    The Department considered alternatives, such as the implementation 
of ``passport books'' or similar systems, but determined that 
implementing them would require a statutory change.

I. New Responsible Persons and Form 5320.23

Comments Received
    In the NPRM, ATF stated that it was considering a requirement that 
new responsible persons submit Form 5320.23 within 30 days of a change 
in responsible persons at the trust or legal entity, and sought 
opinions and recommendations. See 78 FR at 55020. A commenter provided 
three reasons why this change is unnecessary, unworkable, and would 
lead to chaos within legal entities. First, ATF only has authority 
under the NFA to identify applicants, which applies to responsible 
persons before the transfer has occurred, and is not an ongoing 
obligation once the transfer has occurred. Second, companies today face 
many situations that would make it very difficult and overly burdensome 
to determine who is a responsible person and submit the required 
information (e.g., high employee turnover, shifting management 
responsibilities and roles, temporary management changes, overlaps in 
manager authority). In addition, many small legal entities would not 
have the administrative personnel to handle this required process. 
Third, this requirement would create much confusion and raise many 
questions if a potential new responsible person could not obtain the 
CLEO certification.
    This commenter further stated that a continuing obligation to 
obtain approval from ATF to add each new responsible person would 
magnify the burdens related to the proposed CLEO certification 
requirement and the ``responsible person'' definition, particularly 
because legal entities have less control over managerial structure 
changes than they do over a decision about whether and when to acquire 
or make a new NFA firearm. This commenter believes that non-firearm 
related factors overwhelmingly dictate changes in personnel and 
managerial structure, and that complications relating to ensuring 
compliance with an ongoing designation obligation under the 
implementing regulations should not impact the personnel and managerial 
structure of a legal entity.
    A few commenters did not recognize that ATF was only considering 
this change, and thought that this change was being proposed; they 
included their comments on the issue with comments on the proposed 
change to CLEO certification for responsible persons. For example, a 
few commenters stated that the NPRM would impact trustees' abilities to 
manage trusts because of the proposed requirement that new responsible 
persons submit a Form 5320.23 and obtain a CLEO sign-off within 30 days 
of their appointment. A few other commenters stated that, by proposing 
that any new responsible person submit a Form 5320.23 and obtain a CLEO 
signoff within 30 days of the new responsible person's appointment, the 
proposed rule intruded upon the traditional uses of trusts and upon the 
rights of settlors to manage their estate plans.
    Another commenter, noting ATF's long-held position that certain 
activities, such as the sale of a company, hiring new employees, or 
adding new trustees are not ``transfers'' of firearms, stated that the 
rule change would improperly extend ATF's authority. This commenter 
stated that ATF and DOJ incorrectly relied on their authority under 26 
U.S.C. 5812(a) for the proposed change, because that section only 
authorizes ATF to collect information on the transferee during a 
transfer, not to continue collecting information on the transferee (or 
persons who act on behalf of the transferee) after the application is 
approved. This commenter asserted that the 30-day rule requirement 
would enable CLEOs and ATF to veto private decisions that are not the 
business of the government, and that Congress has not authorized such 
veto rights. This commenter asked ATF to consider the negative 
unintended consequences of the 30-day rule requirement, because its 
imposition would effectively mean a CLEO has to approve the sale of a 
company where buyers reside, the addition of trustees where trustees 
reside, the hiring of employees where employees reside, and the 
membership of an association. Further, this commenter stated that if 
ATF implemented this change, ATF would be violating First and Second 
Amendment rights, as well as rights of privacy, when ATF's objective 
could be achieved by any licensed FFL performing a ``discreet, 
confidential NICS check.'' Further, this commenter stated that 
requiring a legal entity to request and receive permission for all 
personnel changes would be cumbersome, impacting personnel decisions 
and greatly increasing hiring costs.
    Another commenter stated that a requirement for all responsible 
persons to submit Form 5320.23 and comply with the CLEO certification 
within 30 days would be a ``radical'' departure from trust law and 
estate planning. As a result, this commenter cautioned ATF to expect 
long and costly court battles, that ATF would lose, as the proposed 
requirements would infringe property rights and the ability to pass 
trust property to legal heirs.
Department Response
    The Department notes that it did not propose to make any changes on 
this issue in the proposed rule. Rather the Department requested input 
and guidance relative to identification of

[[Page 2713]]

new responsible persons who receive, possess, ship, transport, deliver, 
transfer, or otherwise dispose of a firearm for, or on behalf of, an 
entity. The Department is not requiring, in this final rule, that new 
responsible persons submit a Form 5320.23 within 30 days of any change 
of responsible persons at a trust or legal entity.
    The Department further notes that nothing in this rulemaking has 
altered the requirement for trusts and legal entities to submit new 
applications to make or transfer (as applicable) if the trust or legal 
entity intends to possess additional NFA items, or if there is a 
sufficient change in control or ownership of the trust or legal entity 
such that it is considered a new or different entity under relevant 
law. In either case, at the time of such application, the trust or 
legal entity will need to identify current responsible persons, who 
will submit photographs and fingerprints, and undergo a background 
check.
    Refer to section IV.C.1 in this document to review ATF's shift from 
CLEO certification to CLEO notification--a process that alleviates the 
potential for administrative backlogs as a result of personnel changes, 
and any concerns that a CLEO may dictate the operation of an entity.

V. Final Rule

    For the reasons discussed above, this final rule has been revised 
from the proposed rule to eliminate the requirement for a certification 
signed by a CLEO and instead add a CLEO notification requirement. The 
final rule also clarifies that the term ``responsible person'' for a 
trust or legal entity includes those persons who possess the power or 
authority to direct the management and policies of an entity to 
receive, possess, ship, transport, deliver, transfer, or otherwise 
dispose of a firearm for, or on behalf of, the trust or entity. In the 
case of a trust, those with the power or authority to direct the 
management and policies of the trust includes any person who has the 
capability to exercise such power and possesses, directly or 
indirectly, the power or authority under any trust instrument, or under 
State law, to receive, possess, ship, transport, deliver, transfer, or 
otherwise dispose of a firearm for, or on behalf of, the trust. The 
Department has removed ``beneficiaries'' from the final non-exclusive 
list in the definition of ``responsible person.'' However, a 
beneficiary or any other individual actually meeting the definition of 
a ``responsible person'' in the final rule shall be considered one.
    Accordingly, because the law enforcement certification will no 
longer be required, the regulations in Sec. Sec.  479.63 and 479.85 are 
being revised to require the applicant maker or transferee, as well as 
each responsible person, to provide a notice to the appropriate State 
or local official that an application is being submitted to ATF. The 
Department also agrees that a change from a CLEO certification to CLEO 
notification will require a change to the Forms 1, 4, and 5.
    This final rule clarifies proposed Sec.  479.62(b)(2) to denote 
that the required employer identification number for an applicant, 
other than an individual, may be ``if any.'' This final rule makes a 
minor change to proposed Sec. Sec.  479.63(b)(2)(ii) and 
479.85(b)(2)(ii) by removing ``Social Security number (optional)'' and 
``place of birth'' from the ``certain identifying information'' 
required to be submitted on the Form 5320.23 in both of these sections, 
and clarifying that the ``country of citizenship'' must only be 
provided if other than the United States. In addition, this final rule 
removes ``place of birth'' from proposed Sec.  479.62(b)(2) for the 
required Form 1 applicant identity information. This final rule adopts 
all other proposed changes in the NPRM.

VI. Statutory and Executive Order Review

A. Executive Order 12866 and 13563--Regulatory Review

    This regulation has been drafted and reviewed in accordance with 
section 1(b) of Executive Order 12866 (``Regulatory Planning and 
Review'') and with section 1(b) of Executive Order 13563 (``Improving 
Regulation and Regulatory Review''). The Department of Justice has 
determined that this final rule is a significant regulatory action 
under section 3(f) of Executive Order 12866, and, accordingly, this 
final rule has been reviewed by the Office of Management and Budget.
    This final rule will not have an annual effect on the economy of 
$100 million or more; nor will it adversely affect in a material way 
the economy, a sector of the economy, productivity, competition, jobs, 
the environment, public health or safety, or State, local, or tribal 
governments or communities. Accordingly, the final rule is not an 
economically significant rulemaking under Executive Order 12866. The 
estimated costs and benefits of the final rule are discussed below.
1. Summary of Costs and Benefits
    This rule requires certain trusts and legal entities (partnerships, 
companies, associations, and corporations) applying to make or receive 
an NFA firearm to submit information for each of its responsible 
persons to ATF in order for ATF to ensure that such persons are not 
prohibited from possessing or receiving firearms. ATF estimates a total 
additional cost of approximately $29.4 million annually for trusts and 
legal entities to gather, procure, and submit such information to ATF 
and for ATF to process the information and conduct a background check 
on responsible persons. These provisions have public safety benefits in 
that they will enable ATF to ensure that the estimated 231,658 
responsible persons within trusts or legal entities that request to 
make or receive NFA firearms each year are not prohibited from 
possessing such firearms.
    The Department acknowledges that this final rule may increase the 
time required to process applications received from trusts and legal 
entities, as well as for individuals, as an increased number of 
applications undergo more complete checks. The Department estimates 
that this final rule initially will increase processing times of these 
applications from four months to six to eight months. However, the 
Department anticipates that this time will be reduced once the NFA 
Branch adjusts to the new process. In addition, ATF will work to 
increase its resources and staffing to process the applications. Of 
course, continued increases in the numbers of applications submitted 
may correspondingly continue to place pressure on processing times.
    This final rule eliminates the current requirement that all 
individual applicants obtain a certification from the CLEO for the 
locality. Instead, under the final rule, applicants seeking to make or 
receive an NFA firearm are required to notify their local CLEO before 
they submit the ATF application to make or receive an NFA firearm. 
Similarly, the final rule does not adopt a requirement that responsible 
persons obtain a CLEO certification, as was discussed in the proposed 
rule; instead, the final rule extends the same notification requirement 
to all responsible persons for each trust and legal entity applicant. 
ATF estimates the total cost of the CLEO notification requirement in 
this final rule to be approximately $5.8 million annually ($0.5 million 
for individuals; $5.3 million for legal entities), as compared to the 
approximate costs of $2.26 million annually for the current

[[Page 2714]]

requirement that individuals obtain a certification from their local 
CLEO. Therefore, the estimated net cost increase of this final rule 
relating to CLEO notification is approximately $3.6 million annually. 
However, the final rule's estimated cost reduction for individual 
applicants is approximately $1.8 million annually.
2. Costs and Benefits of Ensuring Responsible Persons Within Trusts and 
Legal Entities Are Not Prohibited From Possessing NFA Firearms
a. Methodology for Determining Costs
    ATF estimated the cost of the provisions to ensure responsible 
persons within trusts and legal entities are not prohibited from 
possessing NFA firearms by: (1) Estimating the time and other resources 
that would be expended by legal entities to complete paperwork, obtain 
photographs and fingerprints, and send this information to ATF; and (2) 
estimating the time and other resources that would be expended by ATF 
to process and review the materials provided by the trusts and legal 
entities and to conduct background checks of responsible persons.
    ATF estimated the cost of the time for trusts and legal entities to 
complete these tasks using employee compensation data for June 2015 as 
determined by the U.S. Department of Labor, Bureau of Labor Statistics 
(BLS). See https://www.bls.gov/news.release/pdf/ecec.pdf.\14\ The BLS 
determined the hourly compensation (which includes wages, salaries, and 
benefits) for civilian workers to be $33.19, and for State and local 
government workers to be $44.22. In addition, ATF estimates that each 
trust or legal entity has an average of two responsible persons, an 
estimate that is based on ATF's review of 454 randomly selected 
applications for corporations, LLCs, and trusts processed during 
calendar year CY 2014.
---------------------------------------------------------------------------

    \14\ In the 2013 NPRM, the Department relied on BLS employee 
compensation data from September 2012. In this final rule, the 
Department has used the more recent BLS data from June 2015 because 
it believes that the more recent data more accurately reflects the 
actual benefits and costs of the final rule. The more recent BLS 
data does not meaningfully change the Department's estimates of the 
rule's costs and benefits.
---------------------------------------------------------------------------

    ATF used data from CY 2014 to estimate the number of trusts, legal 
entities, and individuals that would be affected by the final rule. In 
CY 2014, ATF processed 159,646 applications that were either ATF Forms 
1, 4, or 5. Of these, 115,829 applications were for unlicensed trusts 
or legal entities (e.g., corporations, companies) to make or receive an 
NFA firearm; 29,191 were for individuals to make or receive an NFA 
firearm; and 14,626 were for government agencies or qualified Federal 
Firearms Licensees (Gov/FFLs) to make or receive an NFA firearm. The 
numbers of applications, by Form and submitting individual or entity, 
are set forth in Table A.

                                   Table A--Numbers of Applications Processed
----------------------------------------------------------------------------------------------------------------
                                                  Trust &  legal
                     CY 2014                          entity        Individual        Gov/FFL          Total
----------------------------------------------------------------------------------------------------------------
Form 1..........................................          21,879           3,360             477          25,716
Form 4..........................................          93,739          25,343           4,257         123,339
Form 5..........................................             211             488           9,892          10,591
                                                 ---------------------------------------------------------------
    Total.......................................         115,829          29,191          14,626         159,646
----------------------------------------------------------------------------------------------------------------

    ATF estimated the cost of complying with the final rule's 
requirements by estimating the cost of undertaking each of the steps 
necessary to complete an application. Under this final rule, a trust or 
legal entity is required to complete the following steps in addition to 
completing the applicable Form 1, 4, or 5 before it is permitted to 
make or receive an NFA firearm:
    1. Complete and submit Form 5320.23 for each responsible person;
    2. Submit fingerprints and photographs for each responsible person; 
and
    3. Submit a copy of the documentation that establishes the legal 
existence of the legal entity.
    In addition, under the final rule, information required on the 
existing ATF Form 5330.20 would be incorporated into the ATF Forms 1, 
4, and 5.
b. Cost to Trusts and Legal Entities of Applying To Make or Transfer
i. Time Cost of Completing a Responsible Person Form
    The final rule requires trusts and legal entities to complete and 
submit to ATF a new form (Form 5320.23), photographs, and fingerprint 
cards for each responsible person before the trust or legal entity is 
permitted to make or receive an NFA firearm. The information required 
on Form 5320.23 includes the responsible person's name, position, home 
address, and date of birth. The identifying information for each 
responsible person is necessary for ATF to conduct a background check 
on each individual to ensure the individual is not prohibited from 
possessing an NFA firearm under Federal, State, or local law.
    ATF estimates the time for each responsible person to complete Form 
5320.23 to be 15 minutes. Based on an estimate of 2 responsible persons 
per trust or legal entity and 115,829 entities, the estimated time cost 
to complete Form 5320.23 is $1,922,182 (15 minutes at $33.19 per hour x 
115,829 x 2).
ii. Cost of Photographs
    ATF estimates that:
     The cost of the photographs is $11.32 (based on the 
average of the costs determined for 60 Web sites); and
     The time needed to procure photographs is 50 minutes.
    Currently, only individuals must obtain and submit photographs to 
ATF. Based on an estimate of 29,191 individuals, the current estimated 
cost is $1,137,816 (Cost of Photographs = $11.32 x 29,191 = $330,442; 
Cost to Procure Photographs = 50 minutes at $33.19 per hour x 29,191 = 
$807,374). Under the final rule, costs for individuals would remain the 
same, but trusts and legal entities would incur new costs. Each 
responsible person of a trust or legal entity would be required to 
obtain and submit photographs. Based on an estimate of 2 responsible 
persons per entity and 115,829 entities, the estimated cost for trusts 
and legal entities to obtain and submit photographs is $9,029,642 (Cost 
of Photographs = $11.32 x 115,829 x 2 = $2,622,368; Cost to Procure 
Photographs = 50 minutes at $33.19 per hour x 115,829 x 2 = 
$6,407,274).
iii. Cost of Fingerprints
    ATF has reviewed various fingerprinting services. At the present 
time, ATF is only able to accept

[[Page 2715]]

fingerprints on hard copy fingerprint cards. Thus, the cost estimates 
are based on the submission of two hard copy fingerprint cards for each 
responsible person.
     The estimated cost of the fingerprints is $18.66 (cost 
based on the average of the costs determined for 275 Web sites); and
     The estimated time needed to procure the fingerprints is 
60 minutes.
    Currently, only individuals must obtain and submit fingerprints. 
Based on an estimate of 29,191 individuals, the current estimated cost 
is $1,513,553 (Cost of Fingerprints = $18.66 x 29,191 = $544,704; Cost 
to Procure Fingerprints = 60 minutes at $33.19 per hour x 29,191 = 
$968,849). Under the final rule, costs for individuals would remain the 
same, but trusts and legal entities would incur new costs. Each 
responsible person of a trust or legal entity would be required to 
obtain and submit fingerprints to ATF. Based on an estimate of 2 
responsible persons per entity and 115,829 entities, the estimated cost 
for trusts and legal entities to obtain and submit fingerprints is 
$12,011,467 (Cost of Fingerprints = $18.66 x 115,829 x 2 = $4,322,738; 
Cost to Procure Fingerprints = 60 minutes at $33.19 per hour x 115,829 
x 2 = $7,688,729).
iv. Cost of Documents To Establish Existence of Trust or Legal Entity
    A trust or legal entity that is applying to make or receive an NFA 
firearm must provide to ATF documentation evidencing the existence and 
validity of the entity--e.g., copies of partnership agreements, 
articles of incorporation, corporate registration, declarations of 
trust with any trust schedules, attachments, exhibits, and enclosures. 
Currently, trusts and legal entities may submit this documentation with 
their application package, although they are not required to do so. 
Therefore, ATF is treating the costs for documentation as new costs. 
ATF accepts, and will continue to accept, photocopies of the documents 
without notarization. ATF made the cost estimate by determining the 
average number of pages in the corporate or trust documents for 454 
recent randomly selected submissions processed during CY 2014, which 
was 16 pages.
    ATF estimates that:
     The cost of the copied documentation is $1.60 ($.10 per 
page at 16 pages); and
     The time needed to copy attachments is 10 minutes.
    Assuming 115,829 entities would provide ATF this documentation each 
year, the estimated annual cost to submit the documentation is $826,053 
(Cost of documentation = $1.60 x 115,829 = $185,326; Cost to copy 
attachments = 10 minutes at $33.19 per hour x 115,829 = $640,727). This 
cost is not dependent on the number of responsible persons associated 
with a legal entity. ATF notes that the estimated cost is likely to be 
lower if the entity has already filed the documents with ATF as part of 
a recent making or transfer application and the information previously 
provided has not changed. Under these circumstances, the entity can 
certify to ATF that the documentation is on file and is unchanged.
v. Cost of Completing and Mailing Form 1, 4, or 5
    Currently, individuals, trusts, and legal entities must complete 
and mail Form 1, 4, or 5. This final rule should not change the costs 
to individuals, trusts, or legal entities to complete such forms. Even 
if there are multiple responsible persons associated with a trust or 
legal entity, the trust or legal entity still will be completing and 
mailing one Form 1, 4, or 5. However, ATF estimates that trusts and 
legal entities will incur increased postage costs to mail Forms 1, 4, 
and 5 applications to ATF. Currently, for trusts and legal entities, 
these applications only contain the completed form itself; ATF 
estimates postage costs at $56,756 (115,829 x $.49). However, under the 
final rule, trusts and legal entities must also include Form 5320.23, 
photographs, and fingerprint cards for each responsible person, as well 
as documentation evidencing the existence and validity of the trust or 
entity. ATF estimates postage costs for this complete application 
package at $113,512 ($115,829 x $.98). Therefore, ATF estimates the new 
mailing costs for trusts and legal entities, under this final rule, to 
be $56,756 ($113,512-$56,756).
    The estimated costs to legal entities that are discussed above are 
summarized in Tables B(1) and B(2). The total estimated new cost of the 
final rule for legal entities to provide to ATF identification 
information for each of its responsible persons is $23,846,679 
annually.

               Table B(1)--Cost Estimates of the Time To Comply With the Final Rule's Requirements
----------------------------------------------------------------------------------------------------------------
                                                                     Estimated       Number of     2 Responsible
                             Process                              time (minutes)     entities         persons
----------------------------------------------------------------------------------------------------------------
Completion of Form 5320.23......................................              15         115,829      $1,922,182
Procure Photographs.............................................              50         115,829       6,407,274
Procure Fingerprints............................................              60         115,829       7,688,729
Copy Attachments................................................              10         115,829         640,727
                                                                 -----------------------------------------------
    Total.......................................................  ..............  ..............      16,658,885
----------------------------------------------------------------------------------------------------------------


          Table B(2)--Cost Estimates of Procuring Photographs, Fingerprints, Documentation, and Mailing
----------------------------------------------------------------------------------------------------------------
                                                                     Estimated       Number of     2 Responsible
                      Process-related item                             cost          entities         persons
----------------------------------------------------------------------------------------------------------------
Photographs.....................................................          $11.32         115,829      $2,622,368
Fingerprints....................................................           18.84         115,829       4,322,738
Documentation of Legal Entity...................................            1.60         115,829         185,326
Increased Application Postage...................................             .49         115,829          56,756
                                                                 -----------------------------------------------
    Total.......................................................  ..............  ..............       7,187,188
----------------------------------------------------------------------------------------------------------------


[[Page 2716]]

c. Cost to ATF
    ATF incurs costs to process forms, fingerprint cards, photographs, 
and to conduct and review background checks. Currently, ATF incurs 
these costs for the 29,191 applications for individuals to make or 
receive NFA firearms. Under the final rule, ATF would incur these costs 
for applications for trusts and legal entities to make or receive NFA 
firearms. ATF estimates that:
     ATF's cost for the FBI to process a set of fingerprints is 
$12.75. (The cost is based on the FBI's current fee, which is set by 
statute on a cost recovery basis.)
     The estimated cost for an examiner at ATF's NFA Branch to 
conduct and review the results of a background check is $11.06 (15 
minutes at $44.22 per hour); and
     The estimated cost to print the new 5320.23 forms is 
$.0747 per form.
    Based on an estimate of 2 responsible persons per legal entity and 
115,829 entities, the estimated cost for ATF to process forms, 
fingerprint cards, photographs, and to conduct and review background 
checks for applications for legal entities to make or receive firearms 
is $5,533,082 annually (Cost for processing fingerprints = $12.75 x 
115,829 x 2= $2,953,640; Cost for background checks = $11.06 x 115,829 
x 2 = $2,562,137; Cost to print forms = $.0747 x 115,829 x 2 = 
$17,305).

                                     Table C--Costs to ATF Under Final Rule
----------------------------------------------------------------------------------------------------------------
                                                                                     Number of     2 Responsible
                    Process                          Estimated cost or time          entities         persons
----------------------------------------------------------------------------------------------------------------
ATF's costs for Processing Fingerprints.......  $12.75..........................         115,829      $2,953,640
Time Needed to Conduct and Review Background    15 minutes......................         115,829       2,562,137
 Check by ATF.
Cost of Form 5320.23..........................  $.0747..........................         115,829          17,305
                                                                                 -------------------------------
    Total.....................................  ................................  ..............       5,533,082
----------------------------------------------------------------------------------------------------------------

    The estimated total additional cost of the final rule for trusts 
and legal entities to gather, procure, and submit to ATF responsible 
person forms, fingerprints, photographs, documents to establish 
existence of trust or legal entity, and Form 1, 4, or 5, and for ATF to 
process the information and conduct a background check on responsible 
persons is $29,379,155 annually (Sum of tables B(1), B(2), and C: 
$16,658,885 + $7,187,188 + $5,533,082 = $29,379,761).
d. Benefits of Background Checks for Responsible Persons
    The background check requirement for responsible persons provides 
at least two important benefits. First, it provides important public 
safety and security benefits by helping ATF to prevent individuals who 
are prohibited from possessing firearms from obtaining them. Second, by 
requiring responsible persons to submit the same information and meet 
same requirements as individuals who seek permission to make or 
transfer a firearm, the final rule closes a potential loophole that 
might otherwise allow individuals to form trusts or legal entities for 
the purpose of obtaining a firearm they are prohibited from possessing.
    This final rule provides important public safety and security 
benefits by enabling ATF to ensure that individuals who are prohibited 
from possessing firearms do not obtain them. Existing regulations do 
not require the identification of responsible persons of a trust or 
legal entity. Therefore, ATF lacks the necessary information to perform 
a background check on a person who meets the rule's definition of 
``responsible person'' to determine if that person is prohibited from 
possessing an NFA firearm. This final rule provides important public 
safety and security benefits by enabling ATF to identify and perform 
background checks on such persons.
    For example, there may be a number of responsible persons 
associated with a corporation, LLC, or trust. As noted above, based on 
a recent review of applications for corporations, LLCs, and trusts, ATF 
estimates that there are 2 responsible persons associated with such 
legal entities. One or more of these persons could be a prohibited 
person, e.g., a convicted felon. These prohibited persons could be 
establishing trusts or legal entities as a means of avoiding a 
fingerprint-based background check. Therefore, requiring the 
responsible parties of a trust or legal entity to follow the same 
requirements as individuals will close this loophole. Currently, when 
an NFA transfer application is approved, a corporate officer or trustee 
arranges for the receipt of the firearm. If the seller is an FFL, the 
officer or trustee must complete ATF Form 4473 (5300.9), Firearms 
Transaction Record. On the Form 4473, the officer or trustee must 
answer questions that determine if the officer or trustee is a 
prohibited person. If one of the officers or trustees is prohibited, 
then one of the other officers or trustees may pick up the firearm and 
complete the Form 4473. Once the firearm is picked up by the officer or 
trustee, it then becomes corporate or trust property and can be 
possessed by any of the officers or trustees. As discussed in the NPRM, 
ATF has encountered situations in which it lacked the necessary 
information to conduct any background checks to determine whether the 
responsible person at an LLC or trust was a prohibited person. See 78 
FR at 55023 for more detailed discussion. As discussed in section 
IV.B.1.c, there are more recent examples. Between 2006 and 2014 there 
were over 260,000 NFA firearms acquired by trusts or legal entities 
where no individual associated with the trust or entity was subject to 
a NFA background check as part of the application process. As a result, 
under current regulations, prohibited persons can circumvent the 
statutory prohibitions and receive firearms.
3. Costs and Benefits of Final Rule To Notify CLEOs Before Making or 
Transferring an NFA Firearm
a. Cost of Current Requirement To Obtain Law Enforcement Certification
    Under current regulations, the maker or transferee of an NFA 
firearm typically will bring a Form 1, 4, or 5 to the maker or 
transferee's local CLEO to obtain the CLEO certification as required on 
the form and therefore may need to meet with the CLEO. The maker or 
transferee may need to return to pick up the certified form. ATF 
estimates that the time needed for the maker or transferee to procure 
the CLEO certification is 100 minutes (70 minutes travel time and 30 
minutes review time with the CLEO).
    For CY 2014, of the 159,646 Form 1, Form 4, and Form 5 applications 
processed by ATF, 115,829 were for trusts or legal entities to make or 
receive NFA firearms. Trusts and legal entities

[[Page 2717]]

are not currently required to obtain CLEO certification. However, 
certification is required for the 29,191 applications for individuals 
to make or receive NFA firearms. The current cost to obtain CLEO 
certification is estimated as follows:

 The estimated cost for the individual to obtain the CLEO 
certification is $1,614,749 (100 minutes at $33.19 per hour x 29,191)
 The estimated cost for the CLEO to review and sign the 
certification is $645,413 (30 minutes at $44.22 per hour x 29,191)
The total estimated cost of the certification requirement is $2,260,162 
(individuals $1,614,749; CLEOs: $645,413).

                                Table D--Current CLEO Certification Process Costs
----------------------------------------------------------------------------------------------------------------
                                                                     Estimated       Number of
                      Current CLEO process                        time (minutes)    respondents        Cost
----------------------------------------------------------------------------------------------------------------
Procure Certification from CLEO.................................             100          29,191      $1,614,749
Agency Review and Sign Certification............................              30          29,191         645,413
                                                                 -----------------------------------------------
    Total.......................................................  ..............  ..............       2,260,162
----------------------------------------------------------------------------------------------------------------

b. Cost of Requirement To Notify CLEOs
    The final rule replaces the existing requirement to obtain 
certification by the local CLEO before submitting an application to 
make or receive an NFA firearm with a requirement to notify the local 
CLEO before submitting an application to make or receive an NFA 
firearm. The notification requirement requires the maker or transferee 
to mail a copy of the application to the CLEO with jurisdiction over 
the area of the applicant's residence or, in the case of a trust or 
legal entity, the CLEO with jurisdiction over the business or trust. In 
addition, the notification requirement requires all responsible persons 
for trusts and legal entities to mail a copy of Form 5320.23 to the 
CLEO for their area of residence, principal office, or business. The 
effect of this provision is that trusts and legal entities, as well as 
their responsible persons, are required to provide notification of the 
proposed making or transfer to their local CLEOs, whereas currently 
trusts and legal entities and their responsible persons are not 
required to notify or obtain certification from their local CLEOs. 
Individuals must only notify their local CLEOs under the final rule, 
whereas currently they are required to obtain certification from their 
local CLEOs.
    In CY 2014, ATF processed 115,829 applications from trusts and 
legal entities and 29,191 application from individuals. Under the final 
rule, each of these applications require CLEO notification. For 
individuals, the CLEO notification will include a copy of the Form 1, 
4, or 5 application, which contains 3 pages for each application. For 
trusts and legal entities, the CLEO notification will include: (1) For 
the applicant, a copy of the Form 1, 4, or 5 application, which 
contains 3 pages for each application; (2) for responsible persons, a 
copy of Form 5320.23, which contains 2 pages. Form 5320.23 will contain 
a ``copy 1'' page for ATF and a ``copy 2'' page for the CLEO. This 
means that trusts and legal entities will not need to make copies of 
Form 5320.23 when mailing Form 5320.23 to the CLEO. All applicants will 
need to make copies of the application to mail the application to the 
CLEO.
    ATF estimates the cost of CLEO notification for individuals as 
follows:
     The estimated cost to copy an application to send as a 
notification to the CLEO is $.30 for each Form 1, Form 4, and Form 5 
($.10 per page for 3 pages). Cost is $8,757 ($.30 x 29,191).
     The estimated cost to mail an application to the CLEO is 
$.49 (current postage cost). Cost is $14,304 ($.49 x 29,191).
     The estimated cost of the time to copy and mail the 
application to the CLEO is $5.53 (10 minutes at $33.19 per hour). Cost 
is $161,426 ($5.53 x 29,191).
     The estimated cost of the time for the CLEO to review the 
notification is $11.06 (15 minutes at $44.22 per hour). Cost is 
$322,852 ($11.06 x 29,191).
    ATF estimates the cost of CLEO notification for trusts and legal 
entities as follows:
Applicants
     The estimated cost to copy an application to send as a 
notification to the CLEO is $.30 for each Form 1, Form 4, and Form 5 
($.10 per page for 3 pages). Cost is $34,749 ($.30 x 115,829).
     The estimated cost to mail an application to the CLEO is 
$.49 (current postage cost). Cost is $56,756 ($.49 x 115,829).
     The estimated cost of the time to copy and mail the 
application to the CLEO is $5.53 (10 minutes at $33.19 per hour). Cost 
is $640,534 ($5.53 x 115,829).
     The estimated cost of the time for the CLEO to review the 
notification is $11.06 (15 minutes at $44.22 per hour). Cost is 
$1,281,069 ($11.06 x 115,829).
Responsible Persons
     The estimated cost to mail Form 5320.23 to the CLEO is 
$113,512 ($.49 x 115,829 x 2 (number of responsible persons)).
     The estimated cost of the time to mail Form 5320.23 to the 
CLEO is $2.77 (5 minutes at $33.19 per hour). Cost is $641,693 ($2.77 x 
115,829 x 2 (number of responsible persons)).
     The estimated cost of the time for the CLEO to review the 
notification is $11.06 (15 minutes at $44.22 per hour). Cost is 
$2,562,137 ($11.06 x 115,829 x 2 (number of responsible persons) = 
$2,562,137).

                           Table E(1)--CLEO Notification Process Costs for Individuals
----------------------------------------------------------------------------------------------------------------
                                                                                     Number of
                    Process                          Estimated cost or time         individuals        Cost
----------------------------------------------------------------------------------------------------------------
Provide Copy of Application for Notification    $.10/page for 3 pages...........          29,191          $8,757
 to CLEO.
Mailing of CLEO Notification to Agency........  $.49 for stamp..................          29,191          14,304
Copy and Mail Notification....................  10 minutes......................          29,191         161,426
Agency Process CLEO Notification..............  15 minutes......................          29,191         322,852
                                                                                 -------------------------------

[[Page 2718]]

 
    Total.....................................  ................................  ..............         507,339
----------------------------------------------------------------------------------------------------------------


             Table E(2)--CLEO Notification Process Costs for Trusts and Legal Entities (Applicants)
----------------------------------------------------------------------------------------------------------------
                                                                                     Number of
                    Process                          Estimated cost or time       trusts & legal       Cost
                                                                                      entities
----------------------------------------------------------------------------------------------------------------
Provide Copy of Application for Notification    $.10/page for 3 pages...........         115,829         $34,749
 to CLEO.
Mailing of CLEO Notification to Agency........  $.49 for stamp..................         115,829          56,756
Copy and Mail Notification....................  10 minutes......................         115,829         640,534
Agency Process CLEO Notification..............  15 minutes......................         115,829       1,281,069
                                                                                 -------------------------------
    Total.....................................  ................................  ..............       2,013,108
----------------------------------------------------------------------------------------------------------------


         Table E(3)--CLEO Notification Process Costs for Trusts and Legal Entities (Responsible Persons)
----------------------------------------------------------------------------------------------------------------
                                                                                     Number of
                    Process                          Estimated cost or time       trusts & legal   2 Responsible
                                                                                      entities        persons
----------------------------------------------------------------------------------------------------------------
Mailing of Form 5320.23 to Agency.............  $.49 for stamp..................         115,829        $113,512
Mail Form 5320.23 to Agency...................  5 minutes.......................         115,829         641,693
Agency Process CLEO Notification..............  15 minutes......................         115,829       2,562,137
                                                                                 -------------------------------
    Total.....................................  ................................  ..............       3,317,342
----------------------------------------------------------------------------------------------------------------

    The estimated total cost of the final rule to require notification 
to the CLEO is $5,837,789 annually (sum of Tables E1, E2, and E3). As 
shown in Table D, the estimated cost of the current requirement to 
obtain CLEO certification is $2,260,162. Therefore, the final rule 
notification requirement results in an estimated cost increase of 
approximately $3.6 million per year. However, for individuals, the 
final rule notification requirement results in an estimated reduction 
of approximately $1.8 million per year ($2,260,162-$507,339 = 
$1,752,823).
c. Benefits of Requirement To Notify CLEOs
    The new law enforcement notification requirement provides at least 
two important benefits. First, by changing the certification 
requirement to a notification requirement, the final rule reduces the 
burdens on individuals and entities who seek to possess firearms in 
jurisdictions whose chief law enforcement officers either process 
certifications slowly or refuse to process them at all. Second, by 
making the same notification requirement applicable to individuals and 
responsible persons of trusts and legal entities the rule closes a 
loophole that incentivized individuals to form trusts and legal 
entities to circumvent the certification requirement.
    Under current regulations, individuals must obtain a certification 
from a CLEO in their jurisdiction stating, inter alia, that the 
certifying official has no information indicating that possession of 
the firearm by the individual would be in violation of State or local 
law, or no information that the individual will use the firearm for 
other than lawful purposes. Some applicants have found the process of 
obtaining a CLEO certification burdensome. Additionally, local and 
State officials have the option of participating or not, and some CLEOs 
have refused to issue certifications, thereby making it more difficult 
for applicants and transferees to obtain the needed certification. 
Requiring only notice, rather than a certification, will benefit 
applicants and transferees by removing a potentially burdensome 
impediment to furnishing ATF with a completed application.
    Under the current rule, the certification requirement does not 
apply to trusts and legal entities. Some individuals have therefore 
created trusts and legal entities to circumvent the certification 
requirement. This final rule makes the requirements for background 
checks the same for trusts and legal entities as they now are for 
individuals. The Department believes the incentive for makers and 
transferees to create corporations and trusts solely to avoid the CLEO 
certification requirement will decrease once the certification is no 
longer required. As noted in the comments above, some CLEOs are 
reluctant to issue certifications for a variety of reasons. As a 
result, an individual may decide to establish a trust or legal entity 
because trusts and legal entities are not required to provide CLEO 
certifications under current regulations. By eliminating the CLEO 
certification requirement, this rulemaking will reduce the burden 
imposed on such individuals. Certainly, there are legal reasons to 
create a corporation or a trust unrelated to the desire to avoid the 
certification. The Department therefore believes creation of these 
trusts and legal entities will continue.
4. Consolidation of Forms
    The incorporation of the information required on ATF Form 5330.20 
into the existing Forms 1, 4, and 5 reduces the burden upon the 
applicant or transferee by eliminating an additional form to be 
completed and filed. The current estimated time to complete the form is 
3 minutes. Because the information requested on the forms is the same, 
any savings result from the applicant not having to attach a separate 
form. ATF estimates the elimination of the form will reduce the 
industry costs by $240,661 (145,020 transactions for individuals, 
trusts, and legal entities x 3 minutes per form saved x $33.19 per

[[Page 2719]]

hour) and ATF's printing costs by $1,451 (145,020 forms x .01 cents per 
form) for a total reduction in costs of $242,112.

B. Executive Order 13132

    This regulation will not have substantial direct effects on the 
States, on the relationship between the Federal Government and the 
States, or on the distribution of power and responsibilities among the 
various levels of government. The elimination of the CLEO certification 
reduces the burden on State and local agencies, and its replacement 
with the notification of the pending application still provides the 
agency with knowledge of a controlled firearm in its area of 
jurisdiction. As noted in the benefits section, ATF estimates that the 
cost of the notification to the agencies will be less than the cost to 
the agencies of completing the certification. ATF discussed this change 
with State and local agencies. While agencies will no longer be able to 
``deny'' an application by not completing the law enforcement 
certification, the agencies will receive a notification and can contact 
ATF with any issues.
    While there would be an increase in the paperwork filed with ATF 
and an increase in ATF's processing workload, that is balanced by ATF 
being able to conduct background checks on persons who do not receive 
background checks under the current regulations. The overall impact on 
the States will be positive. Therefore, in accordance with section 6 of 
Executive Order 13132 (``Federalism''), the Attorney General has 
determined that this regulation does not have sufficient federalism 
implications to warrant the preparation of a federalism summary impact 
statement.

C. Executive Order 12988

    This regulation meets the applicable standards set forth in 
sections 3(a) and 3(b)(2) of Executive Order 12988 (``Civil Justice 
Reform'').

D. Regulatory Flexibility Act

    The Regulatory Flexibility Act requires an agency to conduct a 
regulatory flexibility analysis of any rule subject to notice and 
comment rulemaking requirements unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. See 5 U.S.C. 605(b). Small entities include 
small businesses, small not-for-profit enterprises, and small 
governmental jurisdictions. See 5 U.S.C. 601. The Attorney General has 
reviewed and approved this rule, thereby certifying that it will not 
have a significant economic impact on a substantial number of small 
entities.
    This rule primarily affects trusts and legal entities that seek to 
make or acquire NFA firearms and are not making or acquiring them as a 
qualified FFL. This rule requires responsible persons of trusts or 
legal entities to undergo background checks and comply with CLEO 
notification requirements. For CY 2014, ATF processed 115,829 
applications from trusts and legal entities that were not qualified 
FFLs. ATF estimates the cost of implementing the rule will increase the 
cost for 115,829 trusts and legal entities with an average of 2 
responsible persons by $25,333,317 (identification costs for background 
checks: $23,846,073; CLEO notification costs: $1,487,244) per year.\15\ 
In addition, in a revision to the NPRM, this rule requires that 
individuals comply with CLEO notification requirements rather than CLEO 
certification procedures, resulting in a compliance cost reduction of 
$1,430,262 from the costs estimated in the NPRM.\16\ Accordingly, the 
estimated compliance cost per entity is estimated to be $218.71 (cost 
of increase ($25,333,317) / number of entities (115,829)).
---------------------------------------------------------------------------

    \15\ This increased cost does not include cost of agency 
processing time for notification. Based on 115,829 entities, the 
notification cost is $1,487,244 ($5,330,450 less $3,843,206).
    \16\ Individual CLEO certification cost, excluding agency 
processing cost, is $1,614,749. Individual CLEO notification cost, 
excluding agency processing cost, is $184,487 ($507,339 less 
$322,852). Notification decreases costs by $1,430,262 ($1,614,749 
less $184,487).
---------------------------------------------------------------------------

E. Small Business Regulatory Enforcement Fairness Act of 1996

    This rule is not a major rule as defined by section 251 of the 
Small Business Regulatory Enforcement Fairness Act of 1996. See 5 
U.S.C. 804. This rule will not result in an annual effect on the 
economy of $100 million or more; a major increase in costs or prices; 
or significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in domestic and 
export markets.

F. Unfunded Mandates Reform Act of 1995

    This rule will not result in the expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year, and it will not significantly or 
uniquely affect small governments. Therefore, no actions are deemed 
necessary under the provisions of the Unfunded Mandates Reform Act of 
1995.

G. Paperwork Reduction Act

    Under the Paperwork Reduction Act, a Federal agency may not conduct 
or sponsor, and a person is not required to respond to, a collection of 
information unless it displays a valid control number assigned by OMB. 
This final rule revises several existing information collections and 
creates a new information collection. The existing information 
collections that are revised are in 27 CFR 479.62, 479.63, 479.84, 
479.85, 479.90, 479.90a, and 479.91, which are associated with ATF 
Forms 1, 4, and 5. Forms 1, 4, and 5 have been approved by the OMB 
under control numbers 1140-0011, 1140-0014, and 1140-0015, 
respectively. The new information collection that is being created is 
associated with ATF Form 5320.23, and is currently in review for 
approval by OMB prior to the effective date of this final rule. Form 
5320.23 requires certain identifying information for each responsible 
person within a trust or legal entity requesting to make or receive an 
NFA firearm, including the responsible person's full name, position, 
home address, date of birth, and country of citizenship if other than 
the United States. Form 5320.23 also requires a proper photograph of 
each responsible person, and two properly completed FBI Forms FD-258 
(Fingerprint Card) for each responsible person. In addition, Form 
5320.23 requires each responsible person to list the full name and 
complete address of the chief law enforcement officer in the 
responsible person's locality to whom the responsible person has 
forwarded the responsible person's completed copy of Form 5320.23.
    The estimated total annual burden hours and related information 
(number of respondents, frequency of responses, costs, etc.) for the 
revisions to Forms 1, 4, and 5, as well as the new Form 5320.23, appear 
below.
    The current estimated total annual burden hours and related 
information for Forms 1, 4, and 5 are based upon the current CLEO 
certification requirements, and the number of applications processed in 
CY 2012. As this final rule eliminates CLEO certification and adds CLEO 
notification, the estimated submission times for Forms 1, 4, and 5 for 
individuals, trusts, legal entities, and Gov/FFL have changed. For 
example, the revised estimated submission times associated with Form 1 
are:

 140 minutes for submission to or by an individual (50 minutes 
to procure

[[Page 2720]]

photographs; 60 minutes to procure fingerprints, 10 minutes to copy and 
mail notification; and 20 minutes to complete and mail the form)
 260 minutes for submission to or by a trust or legal entity 
(for 2 responsible persons) (100 minutes to procure photographs; 120 
minutes to procure fingerprints; 10 minutes to procure the attachments; 
10 minutes to copy and mail notification; and 20 minutes to complete 
and mail the form)
 20 minutes (to complete and mail the form) for a submission to 
or by a government agency or to a qualified FFL

    The above estimated times do not reflect that a trust or legal 
entity must also submit to ATF, as part of each Form 1, Form 4, or Form 
5 application, a completed Form 5320.23 for each responsible person, 
and must provide a copy of completed Form 5320.23 to the CLEO of the 
jurisdiction for each responsible person. Those times are separately 
reflected in the estimated submission time of 40 minutes for submission 
to or by a trust or legal entity of Form 5320.23 (for 2 responsible 
persons) (30 minutes to complete and include ``copy 1'' of Form 5320.23 
in the Form 1, Form 4, or Form 5 application, and 10 minutes to mail 
``copy 2'' of Form 5320.23 for notification.
    With respect to ATF Form 1:
    Estimated total annual reporting and/or recordkeeping burden: 
102,808 hours (current estimated total annual reporting and/or 
recordkeeping burden from OMB Information Collection Number 1140-0011: 
16,374 hours). Note: 477 Gov/FFL responders will take 20 minutes (159 
hours); 21,879 trust and legal entity responders will take 260 minutes 
(94,809 hours); and 3,360 individual responders will take 140 minutes 
(7,840 hours). (The numbers of responders by type are estimated based 
on the data in Table A.)
    Estimated average burden hours per respondent and/or recordkeeper: 
3.86 hours (current estimated average burden hours per respondent or 
recordkeeper from OMB Information Collection Number 1140-0011: 1.69 
hours).
    Estimated number of respondents and/or recordkeepers: 25,716 
(current estimated number of respondents and/or recordkeepers from OMB 
Information Collection Number 1140-0011: 9,662).
    Estimated annual frequency of responses: 1 (current estimated 
annual frequency of responses from OMB Information Collection Number 
1140-0011: 1).
    Estimated total costs: $1,472,570.95
    $1,412,597 (fingerprints and photographs ($29.98 x 3,360 
(individuals) = $100,732; $29.98 x 43,758 (2 responsible persons) = 
$1,311,865))
    $35,006 (copies of legal entity documents ($1.60 x 21,879))
    $24,967.95 (mailing ($.98 each for 25,239 respondents = $24,734.22; 
$.49 for 477 respondents = $233.73) (current estimated total costs from 
OMB Information Collection Number 1140-0011: $146,766).
    With respect to ATF Form 4:
    Estimated total annual reporting and/or recordkeeping burden: 
466,755 hours (current estimated total annual reporting and/or 
recordkeeping burden from OMB Information Collection Number 1140-0014: 
109,552 hours). Note: 4,257 Gov/FFL respondents will take 20 minutes 
(1,419 hours), 93,739 trust and legal entity respondents will take 260 
minutes (406,202 hours), and 25,343 individual respondents will take 
140 minutes (59,134 hours). (The numbers of responders by type are 
estimated based on the data in Table A.)
    Estimated average burden hours per respondent and/or recordkeeper: 
3.66 hours (current estimated average burden hours per respondent and/
or recordkeeper from OMB Information Collection Number 1140-0014: 1.68 
hours).
    Estimated number of respondents and/or recordkeepers: 123,339 
(current estimated number of respondents and/or recordkeepers from OMB 
Information Collection Number 1140-0014: 65,085).
    Estimated annual frequency of responses: 1 (current estimated 
annual frequency of responses from OMB Information Collection Number 
1140-0014: 1).
    Estimated total costs: $6,649,141.29
    $6,380,373 (fingerprints and photographs ($29.98 x 25,343 
(individuals) = $759,783; $29.98 x 187,478 (2 responsible persons) = 
$5,620,590))
    $149,982 (copies of trust or legal entity documents ($1.60 x 
93,739))
    $118,786.29 (mailing ($.98 each for 119,082 respondents = 
$116,700.36; $.49 for 4,257 respondents = $2,085.93) (current estimated 
total costs from OMB Information Collection Number 1140-0014: 
$979,645).
    With respect to ATF Form 5:
    Estimated total annual reporting and/or recordkeeping burden: 5,350 
hours (current estimated total annual reporting and/or recordkeeping 
burden from OMB Information Collection Number 1140-0015: 5,287 hours). 
Note: 9,892 Gov/FFL respondents will take 20 minutes (3,297 hours); 211 
trusts or legal entity respondents will take 260 minutes (914 hours); 
and 488 individual respondents will take 140 minutes (1,139 hours). 
(The numbers of responders by type are estimated based on the data in 
Table A.)
    Estimated average burden hours per respondent and/or recordkeeper: 
.51 hours (current estimated average burden hours per respondent and/or 
recordkeeper from OMB Information Collection Number 1140-0015: 33 
minutes).
    Estimated number of respondents and/or recordkeepers: 10,591 
(current estimated number of respondents and/or recordkeepers from OMB 
Information Collection Number 1140-0015: 9,688).
    Estimated annual frequency of responses: 1 (current estimated 
annual frequency of responses from OMB Information Collection Number 
1140-0015: 1).
    Estimated total costs: $33,152.10
    $27,282 (fingerprints and photographs ($29.98 x 488 (individuals) = 
$14,630; $29.98 x 422 (2 responsible persons) = $12,652))
    $338 (copies of trust or legal entity documents ($1.60 x 211))
    $5,532.10 (mailing ($.98 each for 699 respondents = $685.02; $.49 
for 9,892 respondents = $4,847.08)) (current estimated total costs from 
OMB Information Collection Number 1140-0015: $25,844).
    With respect to ATF Form 5320.23:
    Estimated total annual reporting and/or recordkeeping burden: 
57,914.50 hours (based on 2 responsible persons)
    Estimated average burden hours per respondent and/or recordkeeper: 
.25 hours.
    Estimated number of respondents and/or recordkeepers: 115,829.
    Estimated annual frequency of responses: 1.
    Estimated total costs: $113,512 (mailing to CLEO ($.49 x 231,658 (2 
responsible persons)). All other estimated costs are associated with 
the submission package for Forms 1, 4, and 5.
    Comments concerning the accuracy of these burden estimates for Form 
5320.23 and suggestions for reducing the burden should be directed to 
the Chief, Materiel Management Branch, Bureau of Alcohol, Tobacco, 
Firearms, and Explosives, 99 New York Avenue NE., Washington, DC 20226, 
and to the Office of Management and Budget, Attention: Desk Officer for 
the Department of Justice, Bureau of Alcohol, Tobacco, Firearms, and 
Explosives, Office of Information and Regulatory Affairs, Washington, 
DC 20503.
    The current estimated costs provided above for Forms 1, 4, and 5 
are being revised. ATF has provided OMB with

[[Page 2721]]

the revised cost estimates for these forms.
Disclosure
    Copies of the final rule, proposed rule, and all comments received 
in response to the proposed rule will be available for public 
inspection through the Federal eGovernment portal, https://www.regulations.gov, or by appointment during normal business hours at: 
ATF Reading Room, Room 1E-062, 99 New York Avenue NE., Washington, DC 
20226; telephone: (202) 648-8740.
Drafting Information
    The author of this document is Brenda Raffath Friend, Office of 
Regulatory Affairs, Enforcement Programs and Services, Bureau of 
Alcohol, Tobacco, Firearms, and Explosives.

List of Subjects in 27 CFR Part 479

    Administrative practice and procedure, Arms and munitions, Excise 
taxes, Exports, Imports, Military personnel, Penalties, Reporting and 
recordkeeping requirements, Seizures and forfeitures, and 
Transportation.

Authority and Issuance

    Accordingly, for the reasons discussed in the preamble, 27 CFR part 
479 is amended as follows:

PART 479--MACHINE GUNS, DESTRUCTIVE DEVICES, AND CERTAIN OTHER 
FIREARMS

0
1. The authority citation for 27 CFR part 479 is revised to read as 
follows:

    Authority:  26 U.S.C. 5812; 26 U.S.C. 5822; 26 U.S.C. 7801; 26 
U.S.C. 7805.


0
2. In Sec.  479.11, revise the definition for ``Person'' and add a new 
definition for the term ``Responsible person'' to read as follows:


Sec.  479.11  Meaning of terms.

* * * * *
    Person. A partnership, company, association, trust, corporation, 
including each responsible person associated with such an entity; an 
estate; or an individual.
* * * * *
    Responsible person. In the case of an unlicensed entity, including 
any trust, partnership, association, company (including any Limited 
Liability Company (LLC)), or corporation, any individual who possesses, 
directly or indirectly, the power or authority to direct the management 
and policies of the trust or entity to receive, possess, ship, 
transport, deliver, transfer, or otherwise dispose of a firearm for, or 
on behalf of, the trust or legal entity. In the case of a trust, those 
persons with the power or authority to direct the management and 
policies of the trust include any person who has the capability to 
exercise such power and possesses, directly or indirectly, the power or 
authority under any trust instrument, or under State law, to receive, 
possess, ship, transport, deliver, transfer, or otherwise dispose of a 
firearm for, or on behalf of, the trust. Examples of who may be 
considered a responsible person include settlors/grantors, trustees, 
partners, members, officers, directors, board members, or owners. An 
example of who may be excluded from this definition of responsible 
person is the beneficiary of a trust, if the beneficiary does not have 
the capability to exercise the powers or authorities enumerated in this 
section.
* * * * *

0
3. Section 479.62 is revised to read as follows:


Sec.  479.62  Application to make.

    (a) General. No person shall make a firearm unless the person has 
filed with the Director a completed application on ATF Form 1 (5320.1), 
Application to Make and Register a Firearm, in duplicate, executed 
under the penalties of perjury, to make and register the firearm and 
has received the approval of the Director to make the firearm, which 
approval shall effectuate registration of the firearm to the applicant. 
If the applicant is not a licensed manufacturer, importer, or dealer 
qualified under this part and is a partnership, company (including a 
Limited Liability Company (LLC)), association, trust, or corporation, 
all information on the Form 1 application shall be furnished for each 
responsible person of the applicant
    (b) Preparation of ATF Form 1. All of the information called for on 
Form 1 shall be provided, including:
    (1) The type of application, i.e., tax paid or tax exempt. If the 
making of the firearm is taxable, the applicant shall submit a 
remittance in the amount of $200 with the application in accordance 
with the instructions on the form;
    (2) The identity of the applicant. If an individual, the applicant 
shall provide the applicant's name, address, and date of birth, and 
also comply with the identification requirements prescribed in Sec.  
479.63(a). If other than an individual, the applicant shall provide its 
name, address, and employer identification number, if any, as well as 
the name and address of each responsible person. Each responsible 
person of the applicant also shall comply with the identification 
requirements prescribed in Sec.  479.63(b);
    (3) A description of the firearm to be made by type; caliber, 
gauge, or size; model; length of barrel; serial number; other marks of 
identification; and the name and address of the original manufacturer 
(if the applicant is not the original manufacturer);
    (4) The applicant's Federal firearms license number (if any);
    (5) The applicant's special (occupational) tax stamp (if 
applicable); and
    (6) If the applicant (including, if other than an individual, any 
responsible person) is an alien admitted under a nonimmigrant visa, 
applicable documentation demonstrating that the nonimmigrant alien 
falls within an exception to 18 U.S.C. 922(g)(5)(B) under 18 U.S.C. 
922(y)(2), or has obtained a waiver of that provision under 18 U.S.C. 
922(y)(3).
    (c) Notification of chief law enforcement officer. Prior to the 
submission of the application to the Director, all applicants and 
responsible persons shall forward a completed copy of Form 1 or a 
completed copy of Form 5320.23, respectively, to the chief law 
enforcement officer of the locality in which the applicant or 
responsible person is located. The chief law enforcement officer is the 
local chief of police, county sheriff, head of the State police, or 
State or local district attorney or prosecutor. If the applicant is not 
a licensed manufacturer, importer, or dealer qualified under this part 
and is a partnership, company, association, or corporation, for 
purposes of this section, it is considered located at its principal 
office or principal place of business; if a trust, for purposes of this 
section, it is considered located at the primary location at which the 
firearm will be maintained.
    (d) Approval of Form 1. If the application is approved, the 
Director will affix a National Firearms Act stamp to the original 
application in the space provided therefor and properly cancel the 
stamp (see Sec.  479.67). The approved application will then be 
returned to the applicant.


0
4. Section 479.63 is revised to read as follows:


Sec.  479.63  Identification of applicant.

    (a) If the applicant is an individual, the applicant shall:
    (1) Securely attach to each copy of the Form 1, in the space 
provided on the form, a 2 x 2-inch photograph of the applicant, clearly 
showing a full front view of the features of the applicant with head 
bare, with the distance from the top of the head to the point of the 
chin approximately 1\1/4\ inches, and

[[Page 2722]]

which shall have been taken within 1 year prior to the date of the 
application; and
    (2) Attach to the application two properly completed FBI Forms FD-
258 (Fingerprint Card). The fingerprints must be clear for accurate 
classification and should be taken by someone properly equipped to take 
them.
    (b) If the applicant is not a licensed manufacturer, importer, or 
dealer qualified under this part and is a partnership, company 
(including a Limited Liability Company (LLC)), association, trust, or 
corporation, the applicant shall:
    (1) Be identified on the Form 1 by the name and exact location of 
the place of business, including the name and number of the building 
and street, and the name of the county in which the business is located 
or, in the case of a trust, the primary location at which the firearm 
will be maintained. In the case of two or more locations, the address 
shown shall be the principal place of business (or principal office, in 
the case of a corporation) or, in the case of a trust, the primary 
location at which the firearm will be maintained;
    (2) Except as provided in paragraph (c) of this section, attach to 
the application--
    (i) Documentation evidencing the existence and validity of the 
entity, which includes complete and unredacted copies of partnership 
agreements, articles of incorporation, corporate registration, and 
declarations of trust, with any trust schedules, attachments, exhibits, 
and enclosures;
    (ii) A completed ATF Form 5320.23 for each responsible person. Form 
5320.23 requires certain identifying information, including each 
responsible person's full name, position, home address, date of birth, 
and country of citizenship if other than the United States;
    (iii) In the space provided on Form 5320.23, a 2 x 2-inch 
photograph of each responsible person, clearly showing a full front 
view of the features of the responsible person with head bare, with the 
distance from the top of the head to the point of the chin 
approximately 1\1/4\ inches, and which shall have been taken within 1 
year prior to the date of the application;
    (iv) Two properly completed FBI Forms FD-258 (Fingerprint Card) for 
each responsible person. The fingerprints must be clear for accurate 
classification and should be taken by someone properly equipped to take 
them.
    (c) If the applicant entity has had an application approved as a 
maker or transferee within the preceding 24 months, and there has been 
no change to the documentation previously provided, the entity may 
provide a certification that the information has not been changed since 
the prior approval and shall identify the application for which the 
documentation had been submitted by form number, serial number, and 
date approved.
0
5. Section 479.84 is revised to read as follows:


Sec.  479.84  Application to transfer.

    (a) General. Except as otherwise provided in this subpart, no 
firearm may be transferred in the United States unless an application, 
Form 4 (5320.4), Application for Tax Paid Transfer and Registration of 
Firearm, in duplicate, executed under the penalties of perjury, to 
transfer the firearm and register it to the transferee has been filed 
with and approved by the Director. The application shall be filed by 
the transferor. If the transferee is not a licensed manufacturer, 
importer, or dealer qualified under this part and is a partnership, 
company (including a Limited Liability Company (LLC)), association, 
trust, or corporation, all information on the Form 4 application shall 
be furnished for each responsible person of the transferee.
    (b) Preparation of ATF Form 4. All of the information called for on 
Form 4 shall be provided, including:
    (1) The type of firearm being transferred. If the firearm is other 
than one classified as ``any other weapon,'' the applicant shall submit 
a remittance in the amount of $200 with the application in accordance 
with the instructions on the form. If the firearm is classified as 
``any other weapon,'' the applicant shall submit a remittance in the 
amount of $5;
    (2) The identity of the transferor by name and address and, if the 
transferor is other than a natural person, the title or legal status of 
the person executing the application in relation to the transferor;
    (3) The transferor's Federal firearms license number (if any);
    (4) The transferor's special (occupational) tax stamp (if any);
    (5) The identity of the transferee by name and address and, if the 
transferee is a person not qualified as a manufacturer, importer, or 
dealer under this part, the transferee shall be further identified in 
the manner prescribed in Sec.  479.85;
    (6) The transferee's Federal firearms license number (if any);
    (7) The transferee's special (occupational) tax stamp (if 
applicable); and
    (8) A description of the firearm to be transferred by name and 
address of the manufacturer or importer (if known); caliber, gauge, or 
size; model; serial number; in the case of a short-barreled shotgun or 
a short-barreled rifle, the length of the barrel; in the case of a 
weapon made from a rifle or shotgun, the overall length of the weapon 
and the length of the barrel; and any other identifying marks on the 
firearm. In the event the firearm does not bear a serial number, the 
applicant shall obtain a serial number from ATF and shall stamp 
(impress) or otherwise conspicuously place such serial number on the 
firearm in a manner not susceptible of being readily obliterated, 
altered, or removed.
    (9) If the transferee (including, if other than an individual, any 
responsible person) is an alien admitted under a nonimmigrant visa, 
applicable documentation demonstrating that the nonimmigrant alien 
falls within an exception to 18 U.S.C. 922(g)(5)(B) under 18 U.S.C. 
922(y)(2), or has obtained a waiver of that provision under 18 U.S.C. 
922(y)(3).
    (c) Notification of chief law enforcement officer. Prior to the 
submission of the application to the Director, all transferees and 
responsible persons shall forward a completed copy of Form 4 or a 
completed copy of Form 5320.23, respectively, to the chief law 
enforcement officer of the locality in which the transferee or 
responsible person is located. The chief law enforcement officer is the 
local chief of police, county sheriff, head of the State police, State 
or local district attorney or prosecutor. If the transferee is not a 
licensed manufacturer, importer, or dealer qualified under this part 
and is a partnership, company, association, or corporation, for 
purposes of this section, it is considered located at its principal 
office or principal place of business; if the transferee is not a 
licensed manufacturer, importer, or dealer qualified under this part 
and is a trust, for purposes of this section, it is considered located 
at the primary location at which the firearm will be maintained.
    (d) Approval of Form 4. If the application is approved, the 
Director will affix a National Firearms Act stamp to the original 
application in the space provided therefor and properly cancel the 
stamp (see Sec.  479.87). The approved application will then be 
returned to the transferor.

0
6. Section 479.85 is revised to read as follows:


Sec.  479.85  Identification of transferee.

    (a) If the transferee is an individual, such person shall:

[[Page 2723]]

    (1) Securely attach to each copy of the Form 4, in the space 
provided on the form, a 2 x 2-inch photograph of the applicant, clearly 
showing a full front view of the features of the applicant with head 
bare, with the distance from the top of the head to the point of the 
chin approximately 1\1/4\ inches, and which shall have been taken 
within 1 year prior to the date of the application; and
    (2) Attach to the application two properly completed FBI Forms FD-
258 (Fingerprint Card). The fingerprints must be clear for accurate 
classification and should be taken by someone properly equipped to take 
them.
    (b) If the transferee is not a licensed manufacturer, importer, or 
dealer qualified under this part and is a partnership, company, 
association, trust, or corporation, such person shall:
    (1) Be identified on the Form 4 by the name and exact location of 
the place of business, including the name and number of the building 
and street, and the name of the county in which the business is located 
or, in the case of a trust, the primary location at which the firearm 
will be maintained. In the case of two or more locations, the address 
shown shall be the principal place of business (or principal office, in 
the case of a corporation) or, in the case of a trust, the primary 
location at which the firearm will be maintained;
    (2) Except as provided in paragraph (c) of this section, attach to 
the application--
    (i) Documentation evidencing the existence and validity of the 
entity, which includes complete and unredacted copies of partnership 
agreements, articles of incorporation, corporate registration, and 
declarations of trust, with any trust schedules, attachments, exhibits, 
and enclosures;
    (ii) A completed ATF Form 5320.23 for each responsible person. Form 
5320.23 requires certain identifying information, including the 
responsible person's full name, position, home address, date of birth, 
and country of citizenship if other than the United States;
    (iii) In the space provided on Form 5320.23, a 2 x 2-inch 
photograph of each responsible person, clearly showing a full front 
view of the features of the responsible person with head bare, with the 
distance from the top of the head to the point of the chin 
approximately 1\1/4\ inches, and which shall have been taken within 1 
year prior to the date of the application; and
    (iv) Two properly completed FBI Forms FD-258 (Fingerprint Card) for 
each responsible person. The fingerprints must be clear for accurate 
classification and should be taken by someone properly equipped to take 
them.
    (c) If the applicant entity has had an application approved as a 
maker or transferee within the preceding 24 months, and there has been 
no change to the documentation previously provided, the entity may 
provide a certification that the information has not been changed since 
the prior approval and shall identify the application for which the 
documentation had been submitted by form number, serial number, and 
date approved.


Sec.  479.90  [Amended]

0
7. Section 479.90(b) is amended by removing the word ``natural'' in the 
third sentence.
0
8. Section 479.90a is added to subpart F to read as follows.


Sec.  479.90a  Estates.

    (a) The executor, administrator, personal representative, or other 
person authorized under State law to dispose of property in an estate 
(collectively ``executor'') may possess a firearm registered to a 
decedent during the term of probate without such possession being 
treated as a ``transfer'' as defined in Sec.  479.11. No later than the 
close of probate, the executor must submit an application to transfer 
the firearm to beneficiaries or other transferees in accordance with 
this section. If the transfer is to a beneficiary, the executor shall 
file an ATF Form 5 (5320.5), Application for Tax Exempt Transfer and 
Registration of Firearm, to register a firearm to any beneficiary of an 
estate in accordance with Sec.  479.90. The executor will identify the 
estate as the transferor, and will sign the form on behalf of the 
decedent, showing the executor's title (e.g., executor, administrator, 
personal representative, etc.) and the date of filing. The executor 
must also provide the documentation prescribed in paragraph (c) of this 
section.
    (b) If there are no beneficiaries of the estate or the 
beneficiaries do not wish to possess the registered firearm, the 
executor will dispose of the property outside the estate (i.e., to a 
non-beneficiary). The executor shall file an ATF Form 4 (5320.4), 
Application for Tax Paid Transfer and Registration of Firearm, in 
accordance with Sec.  479.84. The executor, administrator, personal 
representative, or other authorized person must also provide 
documentation prescribed in paragraph (c) of this section.
    (c) The executor, administrator, personal representative, or other 
person authorized under State law to dispose of property in an estate 
shall submit with the transfer application documentation of the 
person's appointment as executor, administrator, personal 
representative, or as an authorized person, a copy of the decedent's 
death certificate, a copy of the will (if any), any other evidence of 
the person's authority to dispose of property, and any other document 
relating to, or affecting the disposition of firearms from the estate.

    Dated: January 4, 2016.
Loretta E. Lynch,
Attorney General.
[FR Doc. 2016-00192 Filed 1-14-16; 8:45 am]
 BILLING CODE 4410-FY-P