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September 18, 2006 The Deep Impact of IRC 409A
Many emerging companies rely on equity compensation as a primary component of their incentive pool for key executives and employees. Near the end of 2005, the proposed section 409A was released. Initial reactions
varied widely as to its impact on private companies and the extent of exposure it actually created. However, IRC 409A extends well beyond a tax issue. In fact, tax exposure is quite possibly third or fourth on the enforcement/exposure list. For What its Worth targets this small segment of IRC 409A and explores how it is effecting board members, companies and most importantly the employees who receive them. While the primary focus will be on the valuation issues that arise for companies with complex capital structures we will explore issues such as the cascading effect on financial reporting as private companies begin to expense stock options. We will also examine issues important to board members such as the potential effect on future rounds of funding for companies raising capital and the reporting requirements of limited and general partners.
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