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IRC 409A

Overview | IRC 409A | 123R | Estate and Gift Tax | Purchase Price Allocation | Fairness Opinions

Valuations for IRC 409A Compliance

As required by the Internal Revenue Code, Section 409A, privately owned companies must demonstrate that stock options are not being issued with an exercise price below fair market value at the time granted, or potentially face tax liabilities for both the company and the stock option recipient. To significantly decrease the potential for this liability, companies may rely upon an independent IRC 409A valuation from a qualified valuation firm to determine the fair market value of the options granted.

IRC 409A valuations are typically completed prior to the grant of options, and IRS guidelines indicate that updates to the valuation should be performed no less frequently than once every 12 months, or more frequently if company-specific circumstances indicate an increase in the market value of the company that had not been contemplated in the original valuation.

Process and Delivery Time Frame

As an independent valuation boutique, Whitehawk ensures that each client receives direct and consistent attention from a senior valuation professional throughout the engagement process. While our normal delivery commitment is 3-4 weeks from engagement, we are capable of meeting more aggressive turnaround requirements in many situations. A site visit is typically not required.

Type of Information Required

Apart from taking the time to understand our clients’ business and industry through qualitative discussions with management, the type of documentary information typically required to complete an IRC 409A valuation includes:

  • Current cap table
  • Articles of incorporation
  • Historical financial information
  • Projected financial information
  • Balance sheet coinciding with valuation date
  • Monthly income statements for 12 months preceding valuation date

Auditability

Whitehawk Advisory professionals have continuously provided IRC 409A valuations to privately held and venture-backed companies since 2006. As a result we have extensive experience in dealing with Big Four and major regional audit firms, and maintain an unblemished record for the acceptance of our IRC 409A valuations by auditors. Our valuation reports and analyses adhere to AICPA guidelines in enterprise valuation and value allocation methodologies.

SFAS 157 Compliant

Our valuation analyses are structured to determine the value of all classes of securities in our clients’ capital structures. We complete the analysis in this way in order to improve the auditability of the 409A analysis as well as enable our clients’ investors and/or lenders to utilize the valuation for compliance with SFAS 157 regarding Warrants and Preferred securities. This type of analysis provides venture-backed companies and their investors with a superior value in comparison with a product that determines only the value of Common Shares.

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