IF YOUR COMPANY HAS EMPLOYEES WHO PAY TAX IN THE U.S.,
YOU SHOULD BE FAMILIAR WITH SECTION 409A

 WHAT IS SECTION 409A OF THE IRC?
Section 409A was enacted as part of the American Jobs Creation Act of 2004 to curb abuses in executive compensation.
Granting ESOP with a strike price less than the fair market value of the stock price on the grant date is exposed to severe penalties of non-compliance.

WHO SHOULD BE CONCERNED ABOUT 409A?
Section 409A applies to non-qualified deferred compensation plans such as employee stock option plans (ESOP) and affects ESOs granted and vested after 31.12.2004.  The company and option holder are subject to significant tax consequences if they don't comply.

PENALTIES FOR NON-COMPLIANCE
Non-compliance will result in significant tax consequences to the company and option holder. These severe tax consequences include:
o Immediate taxation upon vesting of ESO
o interest charge at the underpayment rate plus 1%
o 20% penalty tax in addition to the income tax

HOW DO I COMPLY?
CEO/CFO's can avoid the implications of 409A by fixing the exercise price of existing ESOs.
There are three levels of compliance:
Level A – contemporaneous third-party appraisal
Level B – retroactive third-party appraisal
Level C – contemporaneous/retroactive related-party appraisal
Since performing an internal analysis of fair value is considered to be the least objective and the person performing the analysis, may or may not adhere to generally accepted valuation methods. 
A trustworthy, experienced third-party appraiser is essential for the "peace of mind" of any enterprise.

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S-Cube offers a winning combination of professionalism together with experience and personalized service.
Professionalism - We offer sophisticated valuation solutions, applying advanced tools and contemporary valuation methods based on sound economic theory.
Experience - With today's explicit accounting requirements, experience with accounting regulations is crucial. Our advisors have acquired years of experience with the various regulations and have gained a profound understanding of the standards.
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