409A Valuations are required under section 409A of the Internal Revenue Code, which codifies standards for nonqualified deferred compensation. With narrow exclusions, section 409A covers plans that defer taxable compensation for employees or service providers, including stock appreciation rights and stock options. Nonstatutory stock options generally are taxable at the date of their exercise and not at their grant or vesting. Section 409A preserves this treatment, but only if it can be shown that the stock option is granted with an exercise price at or above the fair market value of the underlying stock on the date of grant. With limited exceptions, an option that is granted at a price deemed to be under fair market value will result in tax at vesting as opposed exercise, as well as an additional 20% tax on the recipient and other potential penalties. That’s why it’s so important to find a team with experience in 409A Valuations.
Value Management Inc. has a proven track record in providing tax-related valuations, including 409A Valuations. Our experience in private company valuations that are reviewed by and for the IRS provides a solid foundation for our 409A valuation services.