Income Tax Treatment of SAFEs and Convertible Debt: Navigating Sections 1202 and 1045, Section 368, Section 83

Convertible notes and SAFEs are common investment instruments used by startups and other businesses seeking to raise capital between priced financing rounds. However, the tax characterization of such instruments is not always clear, and the use of these instruments could have a negative tax result for certain investors in the absence of efficient tax planning.

Counsel representing emerging growth companies and their investors must carefully consider the tax implications of each financing mechanism to evaluate the preferred structure for a particular deal while also avoiding negative tax consequences.

Listen as our authoritative panel discusses the typical structures of SAFEs and convertible debt, key tax considerations for these transactions, navigating potential negative tax consequences for taxpayers, and the impact of Sections 1202 and 1045, Section 368, and other tax provisions.

I. Overview of utilizing SAFEs and convertible debt

II. SAFEs: key terms and tax implications

A. Treatment for federal income tax purposes (Sections 1202 and 1045)

B. Tax treatment for purposes of Section 368

C. Tax treatment for purposes of Section 83

III. Convertible notes: key terms and tax implications

IV. Best practices and pitfalls to avoid

The panel will discuss these and other key issues:

• What are the typical terms of a SAFE?
• What are the tax implications for utilizing SAFEs?
• What are the tax implications of SAFEs under Sections 1202, 1045, 83, and 368?
• How does the tax treatment of a SAFE differ from a convertible debt instrument?

Learning Objectives

After completing this course, you will be able to:

• Recognize the key tax provisions when structuring SAFEs and convertible debt
• Understand the tax implications for utilizing SAFEs under current tax law
• Recognize key tax issues for SAFEs under IRC Sections 1202 and 1045
• Acquire tax planning strategies for minimizing potential tax liability when utilizing SAFEs

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite:

  Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and their respective partners and shareholders.

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IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).