409A Valuation

IRC 409A regulates the taxation of nonqualified deferred compensation, such as stock options and phantom stock. Enacted in 2004, it prevents executives from deferring income to avoid taxes. It requires compliance with rules about deferral elections and payment timing and prohibits acceleration or modification of payments. Noncompliance triggers penalties, including a 20% additional tax on the employee.

A 409A valuation is an independent appraisal of a company's common stock to determine the exercise price of stock options and other equity compensation. It ensures the exercise price is not below the fair market value (FMV) to avoid triggering deferred compensation rules under IRC 409A. A qualified appraiser typically conducts the valuation, which is valid for 12 months unless the company's situation changes materially.

A 409A valuation is required if you offer stock options or equity compensation to employees or others. It ensures IRC 409A compliance, preventing adverse tax consequences for the company and its employees. It also establishes a defensible exercise price, helping with talent attraction and retention while fulfilling IRS reporting requirements.

Private companies offering stock options or equity compensation to employees, consultants, advisors, or directors need a 409A valuation to ensure IRS compliance.

To get a 409A valuation, hire a qualified appraiser with experience valuing private companies.

The appraiser will need financials, cap tables, and other relevant data to perform the valuation.

Once completed, you'll receive a detailed report with the methodology and results. A 409A valuation should be updated at least annually or during material changes.

A 409A valuation typically takes 5 to 10 business days to complete, depending on the complexity of your company's data.

The cost of a 409A valuation depends on your business's size and complexity. Contact us for a personalized quote.