Comment on FR Doc # 2026-08928

As a small-scale manufacturer and Special Occupational Taxpayer (SOT), I write to express concerns with proposed rule 1140-AA75. While framed as "simplification" of transfers, codifying the January 2023 Open Letter creates an untenable environment for legitimate R&D. 1. Interference with the Iterative R&D Lifecycle The rule ties the "legitimacy" of a Post-86 machine gun to immediate demonstration intent. As a manufacturer using additive manufacturing for prototyping (e.g., select-fire conversions for platforms like the FN P90), my process is inherently iterative. A "successful" manufacture under 27 CFR 479.103 often requires months of troubleshooting, geometry revisions, and stress testing. By making "demonstration to government entities" the metric for possession, the ATF effectively outlaws the development phase. A prototype undergoing sear-timing revisions cannot be demonstrated. The rule forces a catch-22: we cannot possess the item without a demo, but cannot develop it for a demo without possessing it. 2. Arbitrary "Commercial Intent" Standards The rule's reliance on the 2023 Open Letter creates a vague "reasonableness" standard for how long a sample may be held. For a small shop, R&D is often a back-burner project funded by other commercial activity. Requiring near-constant marketing ignores small-business engineering reality and creates an "Audit Trap" where an IOI can subjectively deem a work-in-progress prototype "excess inventory" because development has not reached sales-ready phase. 3. The "Simplification" of Closure is a False Benefit The "streamlining" of transfers for discontinuing businesses is a mechanism for forced liquidation, not a licensee benefit. Replacing No-Law-Letter flexibility with accelerated "fast-track" disposal incentivizes shuttering small R&D shops, reduces defense industrial base diversity, and punishes innovators who wish to scale down SOT status without immediately destroying or fire-saling prototypes and IP. 4. Codification of Incumbent Advantage Framing legitimate possession around "demonstration to a government entity" is not neutral it is structurally accessible only to manufacturers who already hold established government contracting relationships. Major primes (FN, Colt, Sig, H&K) maintain business development staff, hold IDIQ vehicles, and route demo requests through contracting officers they have known for years. For incumbents, a demonstration is a calendar entry. For a small 07/02 SOT, innovation runs the other way: we build first often filling niches the primes ignore then seek government or LE interest once the prototype functions. This rule criminalizes that sequence. It demands small manufacturers secure documented interest in a product that does not yet exist in demonstrable form, while permitting primes to develop iteratively because their demonstration channel is pre-existing. The effect is a regulatory moat: the rule restricts not who may manufacture, but who can survive doing so. 5. Disproportionate Financial Impact The compliance burden is regressive. Major manufacturers absorb the cost of compliance counsel, an ATF liaison, and documentation infrastructure. For a small shop, the same expectation is existential, bearing no relation to actual safety or diversion risk. The harm is concrete: A single Post-86 development sample represents $15,000–$40,000 in tooling, materials, machine time, and engineering hours before it fires a round. Post-86 samples have no legal aftermarket; on SOT lapse they must be destroyed, abandoned, or transferred at distressed prices within a compressed window. A single adverse IOI determination that a prototype is "excess inventory" can extinguish 100% of a small shop's R&D portfolio with no statutory violation. The loss is purely interpretive. The "streamlined" closure pathway accelerates this destruction by removing the time during which a licensee might have negotiated transfers, licensed designs, or wound down at recoverable value. For a one- or two-person shop, this is not a compliance cost it is the financial destruction of the business, triggered not by any public-safety failure but by misalignment between iterative engineering reality and a rule drafted as if every manufacturer operates on a prime-contractor procurement cadence. No good-faith RFA analysis can certify this rule lacks significant economic impact on a substantial number of small entities that is precisely what it produces. Recommendation I urge the ATF to revise this NPRM to include a "Safe Harbor" for Active R&D. Possession of a Post-86 machine gun by an 07/02 should be prima facie legitimate so long as the manufacturer can provide technical documentation of development (CAD revisions, prototype iterations, testing logs), regardless of whether a government demonstration has been scheduled. I further urge the Department to publish a genuine small-entity RFA impact analysis before finalization. Tim Bennett Gunsmith