Finance & Valuation

IRC Section 409A

The section of the Internal Revenue Code that governs deferred compensation, including stock options. Section 409A requires that stock options be granted at or above fair market value (FMV) as determined by a qualified independent appraisal. Failure to comply can result in a 20% additional tax on the option holder plus interest penalties. This is why every VC-backed startup needs a 409A valuation.