What are the risks of not obtaining a 409A valuation?
Failing to obtain a 409A valuation can lead to significant tax issues for your employees, as options might be deemed underpriced and therefore subject to immediate taxation along with a 20% federal penalty tax and potential state penalties. These 409A tax penalties are uncapped, meaning that they may continue to be imposed each year (including on any incremental increase in value) so long as the option remains outstanding. Additionally, the company could also face legal and reputational risks if employees are hit with these unexpected tax liabilities. It’s in the company's and employees' best interests to ensure 409A compliance.