Originally published in Financial Advisor Magazine.

A simple agreement for future equity (SAFE) is a contract between an investor and a company that provides rights to the venture capital investor for equity down the road. Interested clients need to know that, concerning taxes, this relatively new and quick form of raising venture capital is not simple, advisors say.

For starters, “there is no definitive IRS guidance on SAFEs,” said Tom Smitha, tax director at CBIZ MHM in Denver.

“For [venture capitalists], raising or infusing money to support future growth and operations of businesses can often be at the forefront, which is why it’s more important to educate them on the tax planning,” said Matt Kardish, a CPA and manager at Transaction Advisory Services at Stephano Slack in Wayne, Pa.

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