When does customization of a firearm become manufacturing? That seemingly simple question is occupying the near undivided attention of the firearms industry. Observers say it is a question with the potential to become a firestorm that could put custom gunsmiths out of business; if not behind bars.

The controversy began with a Bureau of Alcohol, Tobacco & Firearms inspection of Competitive Edge Gunworks in Bogard, Missouri. BATF and tax agents appeared and began examining the company's records. When they finished, owner Larry Crow was told he potentially faced felony charges for manufacturing firearms without a license.

Crow says he was stunned.

Agents went on to tell him that his manufacturing status would mean liability for federal excise taxes - and penalties - from the beginning of his business. There is, they told the thunderstruck Crow, no statute of limitations for failing to file Federal Excise Taxes, but there were serious penalties.

"I'm confused, " an obviously shaken Crow told The Outdoor Wire during a telephone conversation last Thursday, "and more than a little concerned."

Since the BATF visit, Crow hasn't done any gunsmithing, but has initiated the licensure process necessary to change his classification from gunsmith to manufacturer. He also says he's agreed with the BATF to settle the whole matter as quickly as possible. In the meantime, Crow says he's struggling financially, but despite the costs of waiting for his licensure process to be completed, he told The Outdoor Wire "I'm not doing any more work until the manufacturing paperwork's complete."

Whether Crow's is a single case brought by an overzealous agent or the opening shot of a BATF campaign against gunsmiths has the entire firearms industry abuzz.

If it proves to be the first shot of another fight, the stakes are very high. The fallout would be felt by virtually any company or individual involved in the gunsmithing business; from individual gunsmiths and educators teaching firearms repair to companies like Brownells or Midway USA. Those companies primarily supply componentry to gunsmiths, but also produce instructional material. The firearms they produce in the course of those instructional pieces are apparently enough to qualify them as manufacturers in this very narrow interpretation. Likewise, custom gunsmiths' samples are also apparently under scrutiny.

Consequently, the National Shooting Sports Foundation, the Second Amendment Foundation, the National Rifle Association and others are looking for clarification of a single question: at what point does gunsmithing become manufacturing?

BATF regulations appear to offer a solid definition of manufacturing. It would appear, says experts, that a new, and considerably narrower definition is being used against Crow. A definition that has the potential to make virtually any change, from changing parts inside the lockworks to re-barreling or changing firearm calibers enough to constitute manufacturing. Enough, for example, to make any gunsmith's show samples or writers' samples "manufactured" and subject to taxes and penalties.

Should that become the new working definition for ATF and IRS enforcement agents, gunsmiths we've contacted the effect would be immediate and would bankrupt what they consider "one of America's remaining cottage industries."

Hamilton Bowen, of Bowen Custom Arms in Louisville, Tennessee, is a longtime gunsmith and member of the prestigious gunsmiths' guilds. He feels the narrow definition "won't stick" should it come to a fight. He also says the fight itself might be sufficient to put gunsmiths out of business.

"We might win the fight," Bowen said, "but the loss of business along with the associated legal fees for the fight would more than put most of us out of business."

"If the ATF came in and told me that I was liable for federal excise taxes and penalties for all the years I've been in business, I'd just hand them the keys and head to the unemployment office," he said. "ATF is charged with writing regulations to enforce Congressional statutes. They have the ability to clarify statutes, but this one's anything but clear."

San Antonio, Texas gunsmith Alex Hamilton agrees. "I'm essentially a sole proprietor," he says, "if the ATF came in here and started an in-depth investigation, I couldn't work for a couple of reasons. First, I'd be afraid not to be with them the whole time they were here. Secondly, the anxiety their even being here would cause would keep me from doing my job anyway."

The issue isn't licensure; manufacturing licenses are relatively inexpensive, although they add another layer of paperwork and compliance to a small business group that says it already spends a disproportionate amount of working time on compliance paperwork. A retroactivity tax liability could spell significant enough economic damage to shut most gunsmiths down.

Off the record, industry officials say they're starting to receive reports of other gunsmiths being "visited" by BATF officers. Despite those unconfirmed reports, they remain confident the situation can be clarified and a confrontation avoided.

That might be the equivalent of whistling in a graveyard.

Battles between the firearms industry and the BATF have historically been bitter, protracted affairs. Passage of recently-introduced legislation giving gunsmiths a 50-firearm annual tax exemption passed late in the prior Congressional session. The battle to get the legislation introduced, however, took 15 years. It still lacked the support to win the retroactivity gunsmiths had hoped for.

Although they unwilling to say so on the record, some gunsmiths feel the BATF may be getting a little "payback" for the passage of legislation they so vehemently opposed.

In the meantime, the National Rifle Association is attempting to mediate what may have the potential to blossom from a skirmish into a bitter war.

Eric Schwartz, clerk to the NRA's Chief Legislative Counsel, told The Outdoor Wire, "we believe there are inconsistencies by ATF and the IRS that make it difficult, if not impossible, for a law-abiding gunsmith to practice their trade."

"We'd like to see, if necessary, steps taken to address any inconsistencies and make it crystal-clear what acts are manufacturing acts and which are gunsmithing acts so our members can ply their trade in a law-abiding manner."

That might be easier said than done.

One obstacle in the way of "crystal clarity" is a multitude of statutes, regulatory language and opinions; many of which appear to contradict each other. Another; the simple fact that the question lies squarely at an intersection of IRS and BATF regulatory and enforcement areas.

Both agencies have reputations as ferocious opponents to any perceived weakening of their enforcement powers.

The Federal Excise Tax itself may prove to be a bone of litigation should a gunsmith be deemed to be a manufacturer. As observers have pointed out, a Federal Excise Tax on the firearm had already been paid - by the original manufacturer.

Deeming a firearm to have been "manufactured" in the course of customization and subject to FET appears to be a BATF attempt at "double dipping" the firearms industry.

Further, in customization and gunsmithing, labor is the major cost. The gunsmith would have already paid federal income tax on that labor. Again, this creates an apparent attempt at double-taxation.

And what about record keeping? For income tax purposes, businesses are required to maintain their records for a clearly-defined period. BATF has implied no statute of limitations on the potential FET liability for gunsmiths that find themselves declared manufacturers. Consequently, there would be a requirement that records be kept in perpetuity. That creates what legal experts call a "practical impossibility" - a situation where one federal agency creates a requirement that's "practically impossible" to satisfy. Small businesses normally operate in small spaces, i.e., tax records outside the IRS maintenance requirements are routinely destroyed as each year's taxes are filed.

Whether the BATF visit to Competitive Edge was a single agent operating under a personal interpretation of regulations or the first shot in another war between the firearms industry and the BATF is, at this point, irrelevant.

Another genie has been released from another bottle.