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As a result of Internal Revenue Code (IRC) Section 409A, which took effect in 2005, private companies at all stages of development are obtaining independent valuations to support option grants for tax purposes. Our valuations for Sec. 409A purposes are in accordance with the allocation methods outlined in the AICPA Practice Aid, “Valuation of Privately-Held-Company Equity Securities Issued as Compensation.”
A valuation report that provides the fair market value of the common stock to satisfy Section 409A can also provide the fair value of the common stock to satisfy financial reporting requirements. This “dual-purpose” valuation provides consistency between book and tax accounting treatments, and ensures that the company does not have to obtain a second valuation to satisfy its auditors.
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