Are you also wondering whether you need a 409A valuation or not? Worry not, we at Sharp 409A are here to help you to avoid any unnecessary penalties and fines imposed by the IRS for not complying. Here are some questions that you should ask when wondering about getting a 409A valuation:
Plans to issue non qualified deferred compensation?
If you’re a company that wants its employees to be motivated and their goals aligned with the company, you might be considering issuing non-qualified deferred compensation to your key employees. In this case you will need a 409A valuation, provided you check some other boxes as well. This is because this condition alone is not a requirement for getting a 409A valuation, it’s a starting point.
What are Non-Qualified Deferred Compensation (NQDC)?
NQDCs are a kind of deferred compensation that is given to only a limited set of people.
Some examples of it are:
• Stock options
• Restricted stock units
• Phantom stocks
For more details, have a look at you may refer Investopedia
Do you plan on issuing them to a U.S citizen?
In case planning on issuing non qualified deferred compensation to a U.S citizen, then congrats you check in another box for getting a 409A valuation! If not, your troubles end here.
The next question you need to ask is whether you already have a previous 409A valuation report?
If your answer here is NO, then you will need a 409A valuation. Easy right?
But in case your answer is yes, then you’ve probably stayed away from any IRS troubles. This piece in itself is an achievement. But you will need to ask some further questions to answer your question of getting a 409A valuation.
Is your valuation report more than 12 months old?
If the previous 409A valuation report is 12th months old, then it’s clear as a sky that you need a 409A valuation.
If not then,
Do you think there have been any material changes that change the earlier valuation?
Now there might be confusion as to what these material changes are. Well to name a few, achieving a key milestone from the target milestones that a company sets, completing the management team (early stage startups takes some time to gather the required management team), achieving first time profitability or breakeven etc. There can be other material events as well, which we will cover shortly in another blog. Long story short if any material event has happened – then you will need a new 409A valuation, why? because you are better now and might justify better valuation.
If no material event has happened and your previous report is not 12 months old, you have all the green signals to use the previous report, so you don’t need a 409A valuation.
Want your business to stay IRS compliant? Then you can contact an independent valuation appraiser who is experienced and has handled complex 409A valuations like Sharp 409A.
Sharp 409A team of experts will appraise your business hassle free. It offers an affordable pricing and the turnaround time is just 2 days after all the information is received.
Reach out to us today for any questions on 409A valuations!