Here is a list of frequently asked questions regarding the impacts of IRC 409A:

Is 409A directed at the company or the individual?
Unfortunately, the penalties imposed by 409A, which can include additional taxes and penalties, are directed at the individual. Therefore, it’s imperative that the company takes great care to ensure its equity-compensation plans are priced at fair market value in order to avoid non-compliance with 409A.

Does 409A apply to all private companies regardless of the size of their revenues?
Yes. 409A applies to all private companies that have issued nonqualified deferred compensation to employees regardless of revenues.

What is the Independent Appraisal Presumption, and why is it important?
Considered the safest way to value a company for 409A compliance purposes, the Independent Appraisal Presumption is a valuation performed by a qualified independent appraisal specialist using traditional appraisal methodologies. The valuation can be presumed reasonable if completed within 12 months of the applicable stock option grant date.

What is involved in a typical 409A valuation engagement?
The short answer is a company provides a valuation firm internal company documents and financial statements, as well as access to senior management. Here’s a more detailed overview of the valuation process from a recent edition of Quist Valuation News.

Are audited financials required in order to comply with 409A?
No. Financial statements that have gone through an internal review can be used in the valuation process. However, audited financial statements can simplify the valuation process and reduce the perception of risk for an investor.