A 409A valuation is an independent appraisal of a private company's common stock, used to set a legally defensible strike price for employee stock options. It's required under IRC Section 409A to protect option holders from punitive tax penalties.
Without a proper 409A, the IRS can treat options as deferred compensation, which triggers immediate taxation plus a 20% penalty for the employee holding them, a real cost that lands on the wrong person if the company skips this step. A 409A is generally valid for 12 months (365 days) from its effective date, or until a material event, a new funding round, for instance, makes the old valuation stale sooner.
Letting a 409A expire before granting new options is a quiet but common mistake. Nothing technically stops a company from issuing options against a lapsed valuation; it just exposes the recipient to real tax risk if it's ever examined. A valuation from 10 months ago has roughly 60 days left before it needs a refresh, which is about when most companies should already be lining up the next one.
Add your revenue and website for a full diligence brief, reviewed by a CPA who ran EY's West Coast R&D Tax Credit practice for 13 years.