Tax Treatment of the ‘SAFE’ and ‘KISS’

The SAFE, or Simple Agreement for Future Equity, and the KISS, or the Keep It Simple Security, have become a popular way for early stage companies to raise money.   These securities were intended to be simple, low-cost alternatives to convertible debt.  But tax considerations have proved to be a source of uncomfortable uncertainty, especially for questions of when to start holding periods, QSBS qualification, and the allocation of expenses to the equity owners of a tax partnership.  To help cut through the fog, BHLG attorney Ben Damsky has published the first comprehensive analysis of the tax treatment of SAFEs. In short, Ben concludes that that while a tax classification for these securities as a forward contract is supportable, an equity designation is also supportable, and the latter is likely more favorable for taxpayers.   Click here to read the article, or reach out to Ben or another member of the BHLG team for additional information on the tax treatment of the SAFE and the KISS.

Robert Murphy