Bureau of Alcohol, Tobacco, Firearms, and Explosives (BATFE) Modernization and Reform Act of 2006

Bureau of Alcohol, Tobacco, Firearms, and Explosives (BATFE) Modernization and Reform Act of 2006 - (Sec. 2) Amends the federal criminal code to revise the civil penalties for violations of firearms law and the procedures for assessing such penalties. Requires fines to be based upon the nature and severity of the violation, the size of the firearms business involved, and the prior record of the firearm's licensee. Limits total civil penalties to $15,000.

Allows the Attorney General to consider the financial ability of a licensee to pay a civil penalty and defer or suspend part or all of the penalty on a licensee whose license is suspended.

Imposes a five-year limitation period for civil penalty enforcement actions.

Revises procedures for civil enforcement hearings before an administrative law judge.

(Sec. 3) Requires the Attorney General to make a preliminary determination on firearm license applications and to notify applicants in writing of a proposed denial. Allows license applicants to obtain the reasons for the denial and to request a hearing on the application.

(Sec. 4) Defines the legal standard of "willfully" for purposes of determining violations of firearm requirements to require a showing that a person knew of a legal duty and engaged in conduct knowingly and in intentional disregard of the duty.

(Sec. 5) Directs the Attorney General to establish guidelines for Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) inspections, examinations, or investigations of possible firearms violations.

(Sec. 6) Requires the Inspector General of the Department of Justice to review and report to the House and Senate Judiciary Committees on ATF operations relating to the gun show enforcement program and blanket residency checks of prospective and actual firearms purchases.

(Sec. 7) Amends the federal criminal code to prohibit ATF from disclosing information on firearms purchasers other than to a court or to law enforcement officials.

(Sec. 8) Permits a person whose firearms license is expired, surrendered, or revoked 60 days to liquidate firearms inventory. Allows extensions of such 60-day period for reasonable cause.

(Sec. 9) Requires the Attorney General to notify the transferee of a firearms business that the former owner of such business was operating in violation of firearms requirements and to not presume that the transferee is committing the violation.

(Sec. 10) Amends federal criminal code provisions relating to firearms record-keeping requirements to prohibit a materially false entry or an omission of a materially significant entry in a required record (currently, "any false entry" or the omission of an "appropriate entry" is prohibited).

(Sec. 11) Requires any state agency that stores or keeps explosive materials to submit a written report to the Attorney General that specifies each location at which such materials are kept or stored and the types and amounts of such materials. Makes certain federal regulations governing the storage of explosive applicable to state agencies storing explosive materials.