Put the O-Ring on the Magazine!
I now have a properly functioning, semi-auto shotgun!
I finished hunting for grouse tonight and decided to just take a couple of shots to see what would happen. When I took the first shot I saw something fly off to my right. I thought: NO! Now my gun is falling apart! Then I looked at the ground and saw an empty shell! That was a good feeling!
Thanks for the help all. The solution was that the o-ring was supposed to be directly on the magazine. So it should have been in front of the piston... not on it.
On another note: the Federal 12Ga I am using is Heavy Load... so I have used heavy load and light load. I did not try firing the light load yet.