Guide
When do you need a new 409A valuation?
Updated
Most startups over-think the price of a 409A and under-think the calendar. The refresh schedule is set by the regulation, not by your provider's renewal email.
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How this calculator works
- Why the count matters more than the price. For stock not readily tradable on an established securities market, the regulation says fair market value means "a value determined by the reasonable application of a reasonable valuation method".
- Using a previously calculated value is not reasonable if it fails to reflect later information that may materially affect value.
- Nor is it reasonable if "the value was calculated with respect to a date that is more than 12 months earlier than the date for which the valuation is being used" (Treas. Reg. 1.409A-1(b)(5)(iv)(B)(1)). That is where the annual refresh and the event-driven refresh both come from.
- The independent appraisal safe harbor. The regulation presumes a valuation is reasonable where it is "determined by an independent appraisal that meets the requirements of section 401(a)(28)(C) and the regulations as of a date that is no more than 12 months before the relevant transaction to which the valuation is applied".
- The IRS may rebut that presumption only by showing the method or its application was "grossly unreasonable" (Treas. Reg. 1.409A-1(b)(5)(iv)(B)(2)(i)).
- Prices are market prices, not published rates. No government body sets or publishes a 409A fee. The $2,000 default is a round assumption inside the range of the list prices providers publish today, and it is not a statistic. Ask for a written quote and use that instead: the calculator is only as good as the number you put in.
- The count is an upper bound. Adding one valuation per year and one per material event slightly over-counts, because a valuation performed after an event also restarts the 12-month window. Treat the figure as a budgeting ceiling rather than a schedule, and take the schedule from counsel.
- Not included. Cap table software, ASC 718 stock compensation expense reporting, audit support, secondary or tender offer valuations, QSBS attestations and state filings. Several providers bundle some of these with the 409A, which is exactly why comparing headline prices between them is misleading.
- What is at stake if it goes wrong. Where a nonqualified deferred compensation plan fails section 409A, the deferred compensation is included in gross income. The tax is increased by premium interest plus "an amount equal to 20 percent of the compensation which is required to be included in gross income" (26 U.S.C. 409A(a)(1)(B)).
- The cost falls on the option holder, which is why underpricing a strike price is an employee problem before it is a company problem.
- This is general information about a US federal tax rule, not tax or legal advice, and it does not address state law. Talk to your counsel and your accountant before you rely on any of it.
Trigger one: twelve months
The independent appraisal presumption applies where the appraisal is dated "no more than 12 months before the relevant transaction to which the valuation is applied (for example, the date of grant of a stock option)".
The general standard treats a previously calculated value as unreasonable where it was calculated for a date more than 12 months earlier than the date it is being used for. Grant options on a 13-month-old report and you are outside the presumption and arguing on the general standard instead (Treas. Reg. 1.409A-1(b)(5)(iv)(B)).
Trigger two: material information
The regulation is explicit that using a previously calculated value is not reasonable "if such calculation fails to reflect information available after the date of the calculation that may materially affect the value of the corporation". It gives two examples in the text itself: the resolution of material litigation, and the issuance of a patent.
- A priced financing round. The clearest possible arm's length evidence of value, and the most common trigger.
- A signed term sheet or acquisition offer that a buyer is seriously pursuing.
- Resolution of material litigation, named in the regulation as an example.
- Grant of a patent, also named in the regulation as an example.
- A step change in the financials, up or down: a transformative contract, the loss of a dominant customer, a large layoff or a pivot.
- A secondary sale of common stock at a price that itself constitutes an arm's length transaction in the stock.
Two dates the start-up presumption cares about
The illiquid start-up presumption does not apply if, when the valuation is applied, the company or the service provider may reasonably anticipate:
- a change in control event within the following 90 days; or
- a public offering of securities within the following 180 days.
If either is on the horizon, that presumption is not the route to rely on.
How this changes your budget
It is why the count in our calculator is years plus events rather than years alone. A company that raises twice in three years is buying five reports on this logic, not three.
It is also why "unlimited refreshes" in a platform plan is a materially different product from a per-report fee. Comparing headline prices between the two tells you very little.
Slightly conservative by design: a valuation performed after a material event also restarts the 12-month window, so the real count can be lower. Take the schedule from counsel and the price from a written quote.