This free, guided checker walks your team through the key decision points for IRC 409A Common Stock Valuation. Answer a few questions to see the likely approach and the evidence to document.
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This tool is a high-level valuation screening aid for general information only and is not a valuation, appraisal, accounting, tax or legal opinion. A defensible conclusion of value requires a qualified valuation specialist applying professional standards to entity-specific evidence.
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
The section 409A valuation question arises because a stock option or SAR is exempt only if its exercise or base price is at least the stock's fair market value at grant; setting it too low creates a discounted right that fails 409A. Full-value and cash awards do not carry that exercise-price condition, though they may raise separate 409A or ASC 718 issues.
Analyze the award under its own rules; a common-stock value may still be needed to measure grant-date fair value under ASC 718-10-30.
Official guidance: IRS business tax resources
For readily tradable stock the regulation fixes value by reference to market price and permits a consistent averaging method committed to before the grant. Only privately held stock with no trading market requires the reasonable-valuation analysis and its presumptions; confirm which specific class of stock is being valued.
Determine fair market value from the market price under Treas. Reg. Section 1.409A-1(b)(5)(iv)(A) using a consistent, pre-committed method.
Official guidance: IRS business tax resources
A reasonable method must weigh the enumerated factors, reflect all information available through the valuation date, and be applied consistently; a value that ignores those factors is not reasonable no matter how it is labeled. This threshold applies even where the company does not claim a safe-harbor presumption.
Treat the grant as exposed under IRC Section 409A and remediate; adopt a reasonable method weighing the regulatory factors.
Official guidance: IRS business tax resources
The three presumptions each shift the burden so the IRS can rebut the value only by showing the method or its application was grossly unreasonable; a reasonable method with no presumption leaves that burden on the company. Selecting a presumption commits you to its specific conditions, which the following steps test.
Test the appraiser's qualifications and the 12-month window. Test each illiquid start-up condition. Confirm the formula would be respected under Treas. Reg. Section 1.83-5 and is used consistently. Document the reasonable method; the burden of proving reasonableness stays with the company.
Official guidance: IRS business tax resources
The appraisal safe harbor requires genuine independence, appraiser competence meeting the employee stock ownership plan appraisal standard, and a valuation date within 12 months of the grant. A related-party or stale appraisal does not qualify, though the underlying analysis may still support a reasonable method.
The appraisal presumption fails; the value may still be a reasonable method, but without the burden-shifting presumption.
Official guidance: IRS business tax resources
The illiquid start-up presumption is narrow: it is unavailable once the company has operated 10 years or more, when a sale or IPO is reasonably anticipated within the specified windows, or when the preparer lacks demonstrable qualifications. A qualifying written report must address the regulatory factors, not merely state a conclusion.
The start-up presumption fails; assess whether a reasonable method or an independent appraisal is a better basis.
Official guidance: IRS business tax resources
A presumption applies only if the valuation is no more than 12 months old and remains current; a material event arising after the valuation date but before the grant defeats it even inside the 12-month window. Both the elapsed-time limit and the material-event test must be satisfied for the presumption to hold.
The presumption applies; retain the report and calendar the refresh. Refresh the valuation to reflect the event before granting. Obtain a valuation dated within 12 months before granting.
Official guidance: IRS business tax resources
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