ATF's Proposed Revision of “Engaged in the Business” as a Dealer in Firearms

[Hellcat1]

According to the IRS:

"The gain on the sale of a personal item is taxable. You must report the transaction (gain on sale) on Form 8949, Sales and Other Dispositions of Capital AssetsPDF, and Form 1040, U.S. Individual Income Tax Return, Schedule D, Capital Gains and LossesPDF."

So, if someone is being a good doobie, and reporting income on a few guns he sold from his collection as required by the iRS, wouldn't this paper trail potentially get him in hot water with regard to this regulation?


Frank

 

[The Verminator]

I agree that the current Supreme Court would find this unconstitutional, but future ones might rule it valid.

 

[44 AMP]

I note that the language used is both very specific and at the same time seems quite vague about some points.

Note that the making of a profit is not what they are using to define "engaged in the business" (and so requiring an FFL), but rather the INTENT to make a profit is what defines engaged in the business, and keeping records of transactions and providing space (such as renting a table at a gun show) is being deemed PROOF of your intent, with the boilerplate "absent evidence to the contrary" thrown in.

SO, its a freakin' WITCH HUNT, accusation is enough, and burden of proof is on the accused. It probably won't result in conviction of many "harmless hobbyists" AT FIRST, but who can say where things will go in the future when the groundwork is already laid, and ripe for abuse??

And along with this, is the whole issue of changing rules and definitions by administrative fiat not Congressional law.

Just out of curiosity, can you think of anyone (not govt supported) who sells anything without the intent to make a profit???

I can't seem to come up with any...

 

[zukiphile]

Just out of curiosity, can you think of anyone (not govt supported) who sells anything without the intent to make a profit???

GM came so close to achieving the goal that it would be tempting to attribute intent to the effort.

 

[DaleA]

---but the idea that anyone who rents a table at a gun show must be an FFL holder or is automatically presumed guilty of dealing without a license is pretty messed up.

(emphasis added)

Ding! Ding! Ding! (winner)

I suspect this is something they would REALLY like to do...require everyone at a gun show to be an FFL. You know, to close the 'gun show loophole'!!! (And yes, my keyboard is just dripping with sarcasm.)

 

[Aguila Blanca]

I suspect this is something they would REALLY like to do...require everyone at a gun show to be an FFL. You know, to close the 'gun show loophole'!!!

Sarcasm aside, I'm sure you are correct. The Ds have been ranting about the [alleged] "gun show loophole" for years.

 

[44 AMP]

It's called OBEYING THE LAW when it is something the approve of, and a "LOOPHOLE" when it isn't.

Remember one thing about those people, if it weren't for double standards, they probably would have no standards at all.

 

[MTT TL]

Playing the devil's advocate, I can see that a reasonable question to ask would be: "If you aren't in business, what does it matter what you sold a firearm for? You didn't want it, now you don't own it, why keep track of whether you made money on the sale or not?"

Just to be clear, I do think that threshold is overly restrictive because people do care what they sell their property for even if they aren't in business, but I don't think it will be hard to comply with that particular requirement of the rule.

Certainly most people don't dispose of their property for a lot less than it is at fair market value. When I dispose of a vehicle that I don't want I tend to sell it for whatever the fair market value is in my area based upon research I do. If I sell it for more than it is worth or more than I paid for it, this doesn't make me a car dealer. If I buy cars for the purpose of reselling them at profit then in some states I may be considered a dealer.

I have a friend whose father died and left him a collection of about 400 firearms. One of the things I suggested was that he could get a table at a local gun show and sell them off there.

Your friend should be fine. He never purchased the guns for himself therefore he can't earn a profit by selling them.

So, if someone is being a good doobie, and reporting income on a few guns he sold from his collection as required by the IRS, wouldn't this paper trail potentially get him in hot water with regard to this regulation?

Yes, that sounds exactly how dumb most of these federal agencies are. They go after the guy trying to do the right thing and ignore the ones that are too hard or too connected to get.

 

[JohnKSa]

Certainly most people don't dispose of their property for a lot less than it is at fair market value. When I dispose of a vehicle that I don't want I tend to sell it for whatever the fair market value is in my area based upon research I do. If I sell it for more than it is worth or more than I paid for it, this doesn't make me a car dealer. If I buy cars for the purpose of reselling them at profit then in some states I may be considered a dealer.

The new rule doesn't prevent you from making a profit, it only says that if you are keeping track of your profits/losses, they will presume you are engaging in business.

He never purchased the guns for himself therefore he can't earn a profit by selling them.

The rule is saying that if you buy a gun show table to sell guns, you will be presumed to be in business. It doesn't say if you buy a gun show table to sell guns AND make a profit...

Also, given that he didn't pay for the guns, the entire purchase price (less expenses related to the sale) is profit. Profit is defined as sale price - purchase price - expenses. Since the purchase price is zero, profit in his case would be sale price - 0 - expenses.

 

[44 AMP]

He never purchased the guns for himself therefore he can't earn a profit by selling them.

Actually I think you've got that wrong. If he didn't buy them, if it didn't cost him money to obtain them (gift, inheritance, etc.) then if he sells them, 100% of the money made on the sale is profit.

Of course some of that look at it differently, I've inherited several guns, and without exception, no amount of money I would make selling them (and, I don't sell them) would ever cover the "cost" I paid to inherit them. There could be no profit, for me, as I would rather have my Father or Grandfather back than any amount of money their guns might bring.

Beancounters in law and govt, on the other hand, don't take such things into consideration, ever.

 

[Spats McGee]

Which is really only an issue if you're in business. If you're doing it for fun, then your profit/loss is not an issue....

I'm going to have to disagree with this. I've spent the past 10 years or so digging myself and my family out of a ridiculously large financial hole (which was totally my fault). There are several significant points on that road:
1. You're so far in the hole you can't afford not to sell some things, regardless of profit or loss. You just have to have some cash. Still, you need to know what something is worth so that you don't get ripped off in the sale, if at all possible.
2. You're not as far down the hole as #1, so you can afford to hold out a little bit. And if you're lucky, you can hold out long enough to not lose money. It's very helpful to track the market, as well as what you paid for things.
3. You've mostly dug yourself out of the hole, and profit/loss is less of an issue.

I'd submit that especially under #1 and #2, tracking purchase prices and sale prices is very useful. Profit and loss is an issue, even if you're not engaged in the business with the objective of making a profit.

 

[gc70]

There seems to be a bit of a Catch-22 here.

The IRS absolutely wants people to track and report profits on assets that are sold.

But the proposed rule would make tracking profits on gun sales a presumption of dealing in guns in some circumstances.

And I don't think ATF agents would be prohibited from reporting suspected tax evasion to the IRS.

 

[Aguila Blanca]

There seems to be a bit of a Catch-22 here.

The IRS absolutely wants people to track and report profits on assets that are sold.

If I were to report as taxable income every time I sell a gun for $10 more than what I paid for it, then the IRS should also allow me to report as a loss any gun I sell for less than what I paid for it -- and every time I sell a 10-year old car with 200,000 miles on it for less than what I paid when I bought it new from the dealer.

Sauce ==> goose = gander

 

[JohnKSa]

I'd submit that especially under #1 and #2, tracking purchase prices and sale prices is very useful. Profit and loss is an issue, even if you're not engaged in the business with the objective of making a profit.

There's nothing in the rule about tracking the value of items you own or trying to keep track of what you can sell an item for if you need to so you won't be ripped off.

The rule doesn't prohibit making a profit, it just says that if you are tracking profit, that creates the presumption of being engaged in the business.

I would argue that once you sell an item, you no longer need to know what you made on it and at that point, keeping track of profits/losses isn't necessary. Unless you are in business buying and selling such items.

To be clear, I think the rule is stupid and problematic on a number of levels so I'm not arguing in favor of it.

The bigger issue seems to be what gc70 brings up. According to him, the IRS says that even hobbyists should be tracking their profits and reporting them to be taxed on them. That creates a situation where the government is requiring something and then also stating doing that same thing creates the presumption of violating the law.

 

[gc70]

The bigger issue seems to be what gc70 brings up. According to him, the IRS says that even hobbyists should be tracking their profits and reporting them to be taxed on them. That creates a situation where the government is requiring something and then also stating doing that same thing creates the presumption of violating the law.

Income from a hobby is reported on IRS Form 1040, Schedule 1, Line 8j and is explained in Publication 535 under Not-for_profit-Activities - Gross Income.

Gross income from a not-for-profit activity includes the total of all gains from the sale, exchange, or other disposition of property, and all other gross receipts derived from the activity. Gross income from the activity also includes capital gains and rents received for the use of property that is held in connection with the activity.

More generally, a gain from the sale of a personal item is reported on Form 1040, Schedule D as a capital gain.

If you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry, or silverware, your gain is taxable as a capital gain. Report it as explained in the Instructions for Schedule D (Form 1040). You can't deduct a loss.

It begins to nearly seem like a Hobson's choice between facing the ATF or IRS.

 

[DaleA]

If I were to report as taxable income every time I sell a gun for $10 more than what I paid for it, then the IRS should also allow me to report as a loss any gun I sell for less than what I paid for it

I'm not sure what I'm about to say is a good analogy, (heck, I'm not even sure I'm remembering this IRS rule correctly) but if you win a bunch of money gambling in Las Vegas you have to report it as income...if you lose a bunch of money in Las Vegas you CANNOT deduct it. (Unless you have declared yourself to be a professional gambler.)

Sauce for goose? I'm sure they've declared that they are above such things.

 

[LeverGunFan]

I seem to recall when people wanted a FFL, then they could buy from distributors at wholesale and if they were a "kitchen table" FFL they could have the guns shipped to their home. They could add to their personal collection at below retail cost, and also supply relatives and friends. Wasn't it during the Clinton administration when they went after low volume FFL holders for selling too few firearms?

 

[44 AMP]

Wasn't it during the Clinton administration when they went after low volume FFL holders for selling too few firearms?

Not hardly.

What the Clinton administration did was try to put the small dealers out of business by raising the cost of the FFL from $30 to $300 per year. And they did a good job of it, as the number of FFLs dropped dramatically, if I remember correctly.

 

[Bill DeShivs]

The Clinton administration also stopped issuing FFLs to homes that were not in an area zoned "commercial."
And they "forgot" to send renewals, and then declared you had to do a new FFL application, go through the screening process/ATF inspection, etc.-even when you tried to renew during the stated grace period.
I was one of them.

 

[Spats McGee]

....To be clear, I think the rule is stupid and problematic on a number of levels so I'm not arguing in favor of it.

The bigger issue seems to be what gc70 brings up. According to him, the IRS says that even hobbyists should be tracking their profits and reporting them to be taxed on them. That creates a situation where the government is requiring something and then also stating doing that same thing creates the presumption of violating the law.

I don't disagree with any of that.