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8 Things You Need to Know About Section 409A

Many small, closely held companies, especially start-up companies, like to issue stock options to key executives and employees as both an incentive to help grow the company and as a substitute for cash compensation when they need the cash to invest in the business. Your use of our Web site or its facilities constitutes your acceptance of the Terms of Use and Privacy Policy. A stock option or SAR may not provide for a deferral feature i. As a result of Sutardja , we now have judicial affirmation of the following IRS positions:. For purposes of Section A compliance, start-ups are defined as companies that have been in business for less than ten years, do not have publicly traded equity securities, and for which no change of control event or public offering is reasonably anticipated to occur in the next twelve months.

For stock options not issued pursuant to section ("nonqualified options"), there are four basic requirements that must be met to be exempt under section A, as follows: For nonqualified stock options, the exercise price must be at least equal to A public company must base fair market value on a reasonable method using actual sales of its .

What are the consequences of Section 409A?

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Related Capabilities

According to the IRS, discounted stock options fall under Section A of the federal tax code governing nonqualified deferred compensation plans—i.e., those nonqualified plans that provide for a deferral of compensation. Stock options with an exercise price that is equal to or above fair market value when granted are exempt from A. There are five basic requirements applicable to stock options and stock appreciation rights (“SARs”) under Internal Revenue Code Section A, as follows. forth in section of the Code, or nonqualified stock options (“NSOs”) issued to employees and other service providers, which are not required to section A applies (see below for a discussion of when stock options are subject to section A). Under section83, the timing of income inclusion.