How Do I Know If My 409A Valuation Is Compliant?

Your 409A is in good shape if it was done by a qualified independent appraiser, uses a reasonable method, is less than 12 months old, and nothing material has changed since. If any one of those fails, treat the report as stale and get an update before your next option grant.

No agency signs off on a 409A. Compliance means your company can show the strike price was set at fair market value using a defensible process.

What makes a 409A hold up?

Section 409A gives companies a safe harbor presumption when the valuation comes from a qualified independent appraiser. The burden then shifts. The IRS has to show the valuation was grossly unreasonable, not the other way around.

A safe harbor is a presumption. It is not a promise. The report still has to be sound.

What should I check in my current report?

Run through five questions.

1. Who prepared it? An independent appraiser, not a founder, board member, or spreadsheet you filled in yourself.
2. What method does it use? It should name the method and show the work. For most early-stage companies that is an option pricing model (OPM) backsolve to the most recent financing, cross-checked against guideline public companies.
3. What is the valuation date? If it is more than 12 months old, it is out of date.
4. Has anything material happened since? A new priced round, a SAFE or note raise that changes the picture, a secondary sale, a major shift in the business, or acquisition talks.
5. Is there a written report? You need a document that explains the inputs and conclusion. A number in an email does not count.

When does a compliant 409A stop being compliant?

On two triggers. Time and events.

Time: plan to refresh at least every 12 months.

Events: a material event can make a report stale the day after it closes. Option grants priced off a stale report lose the protection the safe harbor gives you.

What happens if my 409A is not compliant?

The risk lands on your employees first. Options priced below fair market value can expose option holders to immediate income tax and additional penalties under Section 409A. It also creates cleanup work during diligence for your next round or an acquisition.

Talk to your tax advisor about any grants already made off a stale report. This page is general information, not tax or legal advice.

How does 409A.io keep a report current?

409A.io is $99/month on a 12-month term, billed monthly. That covers:

• An audit-ready report within 48 hours of receiving your documents.
• OPM backsolve to your most recent financing with a GPC cross-check.
• Preparation in accordance with AICPA guidelines for privately-held equity issued as compensation.
• Review by a valuation professional from the MELD team before every delivery.
• Updates upon request and material-event coverage during your term.
• Direct auditor support. We answer auditor questions.

409A.io was spun out of MELD Valuation. MELD has completed 10,000+ valuations with zero audit issues across its history. That is a track record, not a promise about your audit.

It is built for pre-seed through Series A. When your cap table gets complex, you graduate to MELD. Tell us your situation and we will point you the right way.

What is the next step?

Pull your current report and run the five questions. If it fails any of them, or you have no report yet, start here: Get started.