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Is Your Company’s Stock Incentive Plan Compliant with Internal Revenue Code §409A?

Did you know that the Internal Revenue Code §409A mandates that if stock or stock options are issued with a strike price less than the Fair Market Value (FMV) of the stock at the time it is issued, then the employees will be subject to income tax on the deferred compensation, and the company will be subject to complicated accounting rules and tax consequences.

Employee stock incentive programs, that directly connect compensation to the growth of a company, as motivation benefits for employees, pose significant complexity, especially for privately held companies.

A company may avoid these tax consequences by complying with IRC 409A, which requires that a business valuation be performed within 12 months (or more frequently) of issuing the stock and/or stock options.

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