Can church form an NFA trust for any members to use?

[Sam1911]

The point I was trying to make is that where you see "person" in the NFA, you are supposed to substitute the definition of person from the internal revenue code.

Okay, Mike. I'm sorry for the confusion. But just a couple of things:
As noted from the prefatory language to 26 USC 7701, the substitution doesn't always apply.

The fact that sometimes the word "person" includes a trust doesn't make a trust legally just like a person. And as you note, "person" doesn't include a trust under GCA68.

Ok, so then the question becomes, if you are generally supposed to read the IRC, including the NFA and Hughes Amendment with the understanding that the term "person" includes those objects which may be defined as "persons" under the IRC -- but not always -- how does one know whether in any given instance the term "person" is including ALL "person-like" objects or only homo sapiens, specifically?

Frank, you said it is all in the context, but obviously a person who wants one thing can read a sentence to mean -- with perfect logic -- what HE wants it to mean while another will read it -- with equally impeccable logic -- to mean something quite different. I assume the practical summation of your explanation here might be, "nope, the registry isn't opened just because you've formed a trust," but if it CAN be read that way, how will the question be decided?

 

[Frank Ettin]

...Frank, you said it is all in the context, but obviously a person who wants one thing can read a sentence to mean -- with perfect logic -- what HE wants it to mean while another will read it -- with equally impeccable logic -- to mean something quite different....

But it's not necessarily a question of what might be commonly understood as "perfect logic." Indeed the real meaning of "logic" is frequently misunderstood. Some people think of "logic" as merely thinking about something and seeing what makes sense according to their understanding of things. So once upon a time it was "logical" that the Earth was flat and the center of the universe.

In reality, logic is a process for looking at data or information and drawing new conclusions. The important part of that sentence is "data or information." One can't really figure things out with logic without data or information, and one can't expect to figure things out accurately with logic unless the data or information is correct and complete.

When trying to work out logically the legal meaning, effect or consequences of something, the data or information one needs is everything a court would use to decide the question.

...I assume the practical summation of your explanation here might be, "nope, the registry isn't opened just because you've formed a trust," but if it CAN be read that way, how will the question be decided?

The same way all such questions are decided -- ultimately by the courts.

Let's look at the Hughes Amendment, i e., 18 USC 922(o):

(o)

(1) Except as provided in paragraph (2), it shall be unlawful for any person to transfer or possess a machinegun.

(2) This subsection does not apply with respect to—

(A) a transfer to or by, or possession by or under the authority of, the United States or any department or agency thereof or a State, or a department, agency, or political subdivision thereof; or

(B) any lawful transfer or lawful possession of a machinegun that was lawfully possessed before the date this subsection takes effect.​

Some folks have made a big deal out of the fact that the definition of person under the GCA (specifically 18 USC 921(a)(1)) doesn't include a trust, while the IRC definition does (except "where not otherwise distinctly expressed or manifestly incompatible with the intent thereof"). So, the reasoning goes, since a trust isn't a person, a trust can own a machinegun even if the gun wasn't lawfully possessed prior to the effective date of 18 USC 922(o).

However, that "logic" doesn't consider some material data and information.

First, it doesn't involve a thorough analysis of the the IRC definition of "person" as I outlined in post 22. And as I've outlined, the IRC definition doesn't change the fundamental legal nature of a trust.

Second, it ignores the fundamental legal reality of the nature of a trust. A trust doesn't own anything. A trust doesn't buy or sell anything. In connection with a trust a person (natural or artificial), the trustee, has legal title to the property held in trust. The person might acquire more property to hold in trust. That person might divest property held in trust (subject to his obligations under the trust). But it's always done by a GCA person.

So third, I think it highly unlikely that a court will find the Hughes Amendment doesn't apply to an NFA trust.

 

[Aaron Baker]

Frank, I don't disagree with any of your bullet points on the nature of a trust. I also agree that the traditional understanding of a trust isn't to view it as a separate "entity" like a corporation. Instead, the understanding is that a trust simply describes a legal relationship between the grantor, trustee(s) and beneficiaries.

As a practical matter, though, there are ways in which a trust can be regarded as a quasi-entity. For instance, although a trustee technically holds title to the property in the trust, a suit against the trustee in his personal capacity won't be able to reach the trust's property. Rather, to sue a trust, you must sue the trustee in his representative capacity.

Although trusts and their abilities and liabilities are entirely creatures of state law, the ATF confuses this issue by allowing the transfer to a trust. The applicant on a tax stamp is the trust, rather than a trustee on behalf of the trust. That seems to fly in the face of the accepted idea that property is titled in the name of a trustee. (Although, admittedly, a tax stamp isn't "title" per se.) This seems to jive with the NFA's inclusion of trusts in the definition of person. Persons can have NFA firearms transferred to them, and therefore, so can trusts.

Ultimately, I don't really see any disagreement between Frank, Mike and I. But I also don't really understand the point of making these distinctions in this discussion. Why does it matter?

Aaron

Edit: Oops... maybe I do see the point. We're really talking about whether trusts create a loophole by which the Hughes Amendment doesn't apply and a trust can own a new machine gun. Let's play this out, but I'll start a new post to do it.

 

[Aaron Baker]

So the premise is that the Hughes Amendment could be read in such a way as to only prevent the registration of new machine guns by persons as that term is defined in the GCA, which unlike the NFA, doesn't include trusts in the definition of persons.

Using that logic, the NFA allows both ownership of machine guns and registrations of new machine guns by "persons" and that term includes trusts. But the GCA and the Hughes Amendment attempted to stop the registration of new machine guns by banning the registration of new machine guns by "persons." However, the GCA definition of persons did not include trusts. So the ban is only effective against GCA persons, and not the trusts include in the NFA definition of persons.

Frank seems to be saying that because a trust doesn't really own property--the trustee who is a natural person does--there's still no way for a new machine gun to be registered by a trust. On the surface, that analysis makes sense.

But what throws a wrench in it for me is that the ATF doesn't approve tax stamps to trustees as representatives of trusts. They approve tax stamps in the name of the trust itself. In the case of a Form 4, the trustee must still undergo the 4473 when he picks up the firearm from the FFL. However, for a Form 1, there's no "transfer" to anyone.

If this is really the contours of the current situation, it seems as though a trust should make a Form 1 application to the ATF to build a machine gun, and then when it's denied, sue and make this argument.

Frank, what am I missing? Just that despite the ATF treating trusts like "legal entities" for tax stamp purposes under the NFA, they're really not? But aren't they "persons", for that limited purpose, common law definitions aside?

Aaron

 

[Arizona_Mike]

I mentioned the recent Hughes Amendment question in passing in response to the OP's question in order to opine that the recent ATF determination might complicate interstate transfer of physical possession between trustees and that a corporation would probably not have those issues being unambiguously a "person" under both statutes and thus there would be no transfer under either the NFA or GCA.

To Aaron's point about the ATF treating trusts as a quasi entity, they appear to be very strict about the Trust being the licensee. I had forms returned to me for having "c/o myself" in the trust address (out of mail delivery concerns) with instructions to cross that out! (I have since had Form 5320s lost in the mail), Also people transferring a item from a trust to themselves need an approved Form 4 and have to pay the tax. Some but not all lawyers specializing in gun trusts insist that the trust have it's own bank account and I have been advised by one lawyer that while a assignment of property is required after making a gun on a Form 1 it is not needed for a Form 4 as the transfer is to the trust. There is also an instruction on the back of the Form 4473 that a trustee is receiving the weapon on behalf of the trust.

If you look at last year's thread, I was initially unclear as to the nature of trusts but accepted Franks explanation while contesting a different issue: I was highly skeptical of the argument that the Form 5320 (which is not needed for 2 classes of NFA weapons) "trumped" the CGA (Form 4473 and FFL involvement) with respect to exchange of physical possession between trustees living in different states for Title II (but of course not Title I) weapons (including those 2 categories not needing a Form 4473) under the general principal of lex specialis. If anything the recent determination of applying the definitions in the GCA strictly to GCA provisions that apply to NFA weapons makes me even more worried about the trustees in different states hypothetical. In fact the less entity-like a trust is the worse it bodes for trustee B to be able to physically take possession of said NFA weapon from trustee A.

Mike

 

[Superpsy]

Aaaand down the rabbit hole we go.

 

[Arizona_Mike]

If this is really the contours of the current situation, it seems as though a trust should make a Form 1 application to the ATF to build a machine gun, and then when it's denied, sue and make this argument.

Joshua Prince of Prince Law Firm in PA did just that back in May. For a mini gun!

Mike

 

[Aaron Baker]

Just a matter of time before we have an answer, then.

 

[Frank Ettin]

...As a practical matter, though, there are ways in which a trust can be regarded as a quasi-entity. For instance, although a trustee technically holds title to the property in the trust, a suit against the trustee in his personal capacity won't be able to reach the trust's property...

Well what you're seeing are some of the strategies we use to help compartmentalize things and protect a trustee's personal assets. Also, these are very involved and highly technical matters which sometimes get treated in something of a shorthand manner in casual conversation.

One of my clients did a lot of business with labor-management trusts. We would casually talk about signing a contract with a trust. But in the actual contract the other party was identified as "The Trustees of the XYZ Trust." The contract would by signed by "Fred Smith as Trustee of the XYZ Trust."

Trust document often contain provision expressly authorizing a trustee to use assets held in trust to pay certain debts incurred in the performance of his duties as trustee, as well a provision indemnifying him against liability arising from the faithful performance of his duties.

....But what throws a wrench in it for me is that the ATF doesn't approve tax stamps to trustees as representatives of trusts. They approve tax stamps in the name of the trust itself. In the case of a Form 4, the trustee must still undergo the 4473 when he picks up the firearm from the FFL. However, for a Form 1, there's no "transfer" to anyone....

And that seems a very anomalous situation. It seems to me that the ATF is not properly recognizing the nature of the trust form. How this will all get sorted out is something of a puzzle. But the use of trusts is not limited to NFA matters. I have trouble seeing the courts carve out a unique trust law for NFA trusts.