When Does Your 409A Valuation Expire? Triggering Events and Safe Harbor Timing

A 409A valuation supports option grants for up to 12 months from its valuation date, as long as nothing has happened that materially changes the company's value. Under Treas. Reg. §1.409A-1(b)(5)(iv)(B)(2)(i), an independent appraisal is presumed reasonable for a grant only if the valuation date is no more than 12 months before the grant. With the presumption, the IRS must show the value was grossly unreasonable to overturn it.

The clock starts on the valuation date, not the report delivery date. If your appraiser values the company as of January 15, 2026 and delivers the report on February 28, 2026, the last grant it can support is on January 15, 2027.

Many teams track only the report date and run out of coverage early. Record both dates in your equity platform and start the renewal about two months before the 12-month mark.

Even inside the 12-month window, the regulation says a previously calculated value is not reasonable if it fails to reflect information available after that date that may materially affect value. The IRS has not published a list of events, so this is a judgment call. These are the ones we treat as triggers:

• Closing a priced equity round
• Signing a term sheet for a round, even before closing
• Issuing SAFEs or notes at a cap well above the value in your current report
• Receiving an acquisition offer or signing a letter of intent
• A large secondary sale of common stock
• A sharp change in revenue trajectory, such as losing or winning a customer that moves your forecast meaningfully

A priced round is the clearest case. If your last 409A assumed a $20M enterprise value and you just closed a Series A at $50M pre-money, the old report no longer supports new grants. When in doubt, get a new valuation. The fee is small compared with the tax exposure of grants priced on a stale number.

The question we hear most is whether to get a new 409A before or after a round. Usually both.

A valuation completed before the round, with grants made before you sign a term sheet, lets you grant at the pre-round value. Once a term sheet is signed, most advisors treat the old value as stale, so the window closes earlier than founders expect.

After closing, order a new valuation promptly. The round price is a fresh arm's-length data point, and new hires usually cannot receive grants until the post-round report is adopted. Some teams pause grants for a few weeks while the new report is prepared.

One caution: do not rush grants into the gap between term sheet and close to lock in the old price. That is exactly the pattern an acquirer's counsel or an examiner will look for.

Grants on an expired or stale 409A lose the safe harbor presumption. That alone does not trigger tax, but if the actual FMV on the grant date was higher than the strike price, the option is discounted deferred compensation that fails §409A.

The consequences fall on the option holder under IRC §409A(a)(1). The spread on vested options is included in income as it vests, without waiting for exercise. A 20% additional tax applies to that amount under §409A(a)(1)(B)(i)(II), plus interest at the underpayment rate plus 1 percentage point.

For example, suppose an employee holds 50,000 options vesting evenly over four years, and the strike price turns out to be $2 below FMV. Each year 12,500 options vest, creating $25,000 of income. The 20% additional tax is $5,000 a year, before ordinary income tax and interest.

The company is not charged the 20% tax, but it must report the income (Form W-2, box 12, code Z for employees) and faces withholding exposure. Repricing affected grants and explaining the problem to employees and investors is the larger practical cost.

Routine operating events that were already reflected in your projections usually do not require a new 409A. The test in Treas. Reg. §1.409A-1(b)(5)(iv)(B)(1) is whether the information may materially affect value, and ordinary progress against the plan the appraiser already saw normally does not.

Events we generally do not treat as triggers on their own:

• Hiring in line with the plan, or making routine option grants at the current value
• Winning or losing customers when revenue stays close to the forecast in the report
• A product launch that was already in the projection
• A small SAFE or note at a cap consistent with the value in the current report
• A modest change in burn rate that does not change the runway assumption

The judgment changes when several small events add up. A company that is 40% ahead of its revenue plan by month eight, has added two large customers and is fielding inbound investor interest should not rely on a report that assumed the slower plan. Write down your reasoning in the board minutes when you decide an event is not material. That record helps in diligence if anyone later asks why grants continued on the old value.

Mapping grant dates against the report's valuation date and the events in between shows exactly when coverage starts and stops. Here is a hypothetical company.

1. March 1, 2026. Valuation date of the current independent appraisal. Report delivered April 2, 2026.
2. April through August. Monthly grants approved at the report value. All are within 12 months of March 1 and no material events occur, so the presumption applies.
3. September 10, 2026. The company signs a Series A term sheet. From this date the old report is treated as stale and grants pause.
4. October 15, 2026. The round closes. The company orders a new valuation with an October 15 valuation date.
5. November 5, 2026. The board adopts the new report and approves the grants that were held back, at the new value.

Without the round, the March 1 report could have supported grants through March 1, 2027. The term sheet cut that window short by almost six months. Employees hired in September and October waited a few weeks for grants, which is a normal cost of fundraising and much cheaper than repairing grants priced below FMV.

The grant date for 409A purposes is generally the date the board, or a committee with delegated authority, completes the corporate action approving the grant with its key terms fixed, and the FMV in effect on that date must support the strike price. An offer letter that promises options does not set the grant date on its own.

Three mechanics cause most problems:

• Unanimous written consents. A consent is effective when the last director signs. If the final signature arrives after a term sheet is signed, the grant may fall outside the old report's coverage.
• Backdating. Setting a grant date earlier than the actual approval to use a lower value is not permitted and creates both tax and securities law exposure.
• Strike set before the report is adopted. Approving grants at an expected value before the board has the final report leaves the grant without support if the final number is higher.

Agree on a grant calendar with counsel, for example one approval date per month, and check the 409A status on each date before the consent goes out.

Every startup that issues options should keep a short 409A calendar:

1. Record the valuation date of the current report and the date 12 months later.
2. Start the renewal at month 10 so the new report is adopted before coverage runs out.
3. Put a standing item on the board agenda: has anything happened since the last valuation that could materially affect value?
4. Order a new valuation after every priced round, before the next grant.

Companies that grant every month or quarter and raise often may find a six-month refresh cycle simpler than tracking events one by one.

We run this calendar for clients as part of our 409A advisory work, checking for material events during the monthly close. This is general information checked in October 2026, not tax advice for your specific facts.