Rev. Rul. 86-84

1986-1 C.B. 322, 1986-25 I.R.B. 6.

Internal Revenue Service
Revenue Ruling

SALES OF MACHINE GUNS; APPLICATION OF MANUFACTURERS EXCISE TAX AND

TRANSFER TAX

Published: June 23, 1986

Section 4181.-Imposition of Tax 26 CFR 48.4181-1: Imposition and rates of tax.

(Also Section 4182; 48.4182-1.)

Sales of machine guns; application of manufacturers excise tax and transfer tax. The manufacturers excise tax on firearms imposed by section 4181 of the Code applies to the sale of a machine gun by a qualified manufacturer to a qualified dealer, notwithstanding that the dealer, will subsequently resell the machine gun in a sale subject to the transfer tax imposed by section 5811.

ISSUE

If machine guns are sold in a transaction that is exempt from the transfer tax imposed by section 5811 of the Internal Revenue Code but the guns will be subsequently resold in a transaction that is subject to that tax, does the manufacturers excise tax on firearms imposed by section 4181 apply to the first sale?

FACTS

A manufacturer of firearms sells a machine gun to a dealer for resale. Both the manufacturer and the dealer are qualified under chapter 53 of the Code to engage in their respective businesses. Thus, the sale may be made without payment of the transfer tax imposed by section 5811 of the Code. The dealer intends to resell the machine gun in a sale that is subject to the transfer tax imposed by section 5811.

LAW AND ANALYSIS

Section 4181 of the Internal Revenue Code imposes a tax on the sale by the manufacturer, producer, or importer of pistols, revolvers, firearms, shells, and cartridges.

Section 4182 of the Code provides that the tax imposed by section 4181 shall not apply to any firearm on which the tax provided by section 5811 has been paid.

Section 5811 of the Code imposes a tax on the transfer of certain firearms

(including machine guns).

Section 5852(d) of the Code provides that a firearm registered to a person qualified under chapter 53 to engage in business as an importer, manufacturer, or dealer may be transferred by that person without payment of the transfer tax imposed by section 5811 to any other person qualified under chapter 53 to manufacture, import, or deal in that type of firearm.

In the present situation, the tax imposed by section 5811 of the Code does not apply to the sale between the qualified manufacturer and the qualified dealer be reason of section 5852(d), and thus the tax imposed by sectin 5811 was not paid. Because that tax was not paid, the manufactures excise tax exemption provided by section 4182 does not apply. It is immaterial for purposes of the imposition of a tax under section 4181 whether any subsequent sale or transfer of the machine gun is subject to the transfer tax imposed by section 5811.

HOLDING

The manufacturers excise tax on firearms imposed by section 4181 of the Code applies to the sale of the machine gun by the qualified manufacturer to the qualified dealer, notwithstanding that the dealer will subsequently resell the machine gun in a sale subject to the transfer tax imposed by 581.

Rev. Rul. 86-84, 1986-1 C.B. 322, 1986-25 I.R.B. 6