IRC 409A Common Stock Valuation
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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ESOP Adequate Consideration Valuation
This free, guided checker walks your team through the key decision points for ESOP Adequate Consideration 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.
The questions this tool walks you through
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
Is the interest being valued employer securities to be acquired, held, or sold by an employee stock ownership plan (ESOP) subject to ERISA?
Adequate consideration under ERISA Section 3(18) is specific to plan transactions in employer securities. Confirm the plan is an ESOP holding qualifying employer securities and that ERISA governs, because a non-ESOP interest is measured under whatever standard its own purpose requires.
The adequate-consideration standard applies only to ESOP employer securities; select the basis of value that fits the actual purpose under IVS 104.
Official guidance: IRS business tax resources
Are the employer securities readily tradable on an established securities market with a generally recognized, prevailing market price?
The path splits on marketability: securities with a generally recognized market price use that price, while closely held employer securities require an independent appraisal. Confirm whether an active, established market actually sets a reliable price, because thin or occasional trading is not a generally recognized market.
Measure adequate consideration by the prevailing market price on the established market as of the transaction date under ERISA Section 3(18).
Official guidance: IRS business tax resources
Has fair market value been determined by a qualified appraiser who is independent of the employer, the selling shareholder, and the plan fiduciary, as of the transaction date?
IRC Section 401(a)(28)(C) requires that non-publicly-traded employer securities be valued by an independent appraiser. Test the appraiser's independence from the seller, the company, and the fiduciary, and confirm the valuation date matches the transaction date, because a stale or conflicted appraisal cannot support adequate consideration.
Obtain an appraisal by an appraiser independent of all parties, as of the transaction date, as required by IRC Section 401(a)(28)(C), before the ESOP transacts.
Official guidance: IRS business tax resources
How did the plan fiduciary adopt the appraiser's fair market value conclusion?
Adequate consideration has two prongs: the value must equal fair market value and the fiduciary must determine it in good faith. Good faith turns on a prudent, documented, independent evaluation of the appraisal and its inputs, so a fiduciary who cannot show that process fails the standard even when a number exists.
Proceed to test the consideration against fair market value. Document an independent, prudent evaluation of the appraisal before relying on it, as the good-faith prong of ERISA Section 3(18) requires. Engage an appraiser free of seller and management influence and re-run the determination at arm's length under Rev. Rul. 59-60. Have the fiduciary test and reconcile the projections to the company's capacity before adopting the value under ERISA Section 3(18).
Official guidance: IRS business tax resources
Is the total consideration the ESOP will pay at or below the fair market value the independent appraiser concluded?
An ESOP may pay no more than fair market value; overpayment is the core adequate-consideration failure and a prohibited transaction. Compare the full purchase price, including any seller financing, warrants, and contingent consideration, against the appraised value, because economic terms beyond the headline price affect what the plan effectively pays.
Reduce the price to fair market value or below before the ESOP transacts, or the purchase is a non-exempt prohibited transaction under IRC Section 4975.
Official guidance: IRS business tax resources
What ownership level and control attributes will the ESOP actually acquire in this transaction?
The basis of value must match the control the ESOP truly receives. A control basis or control premium is supportable only when the plan can actually direct the enterprise; paying a control price for a legally or contractually constrained majority overstates value and risks paying more than adequate consideration.
Test whether the control the price assumes is genuinely exercisable and the repurchase obligation is reflected. Test whether the constrained majority actually confers exercisable control before applying any control basis or premium. Value the interest on a minority basis and consider discounts for lack of control and lack of marketability under Rev. Rul. 59-60.
Official guidance: IRS business tax resources
Will the ESOP hold and be able to exercise control commensurate with the control-basis value or control premium reflected in the price, after accounting for the company's repurchase obligation?
Control has value only if it can be exercised, and the company's obligation to repurchase shares from departing participants is a real, recurring cash demand that a control owner must fund. Confirm the plan's control is unconstrained and that the repurchase liability is reflected in cash flows or as a discount, because both determine whether a control-basis value is defensible.
Conclude value on a control basis consistent with the control the plan can exercise, with the repurchase obligation reflected. Conclude value nearer a minority basis and do not pay a control price for control the plan cannot exercise.
Official guidance: IRS business tax resources
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