# What is 409A Valuation? Definition & Technical Mechanics

> **Source:** [SPIDITS AI Startup & Venture Intelligence Glossary](https://spidits.com/startup-glossary)  
> **Category:** Funding  
> **Canonical Citation:** [https://spidits.com/startup-glossary/409a-valuation](https://spidits.com/startup-glossary/409a-valuation)

## Definition
A 409A Valuation is an independent appraisal of a private startup's common stock value, required by IRS Section 409A to set tax-compliant option strike prices.

## Architectural Mechanics & Deep Dive
A 409A Valuation is an independent appraisal of a private startup's common stock value, required by IRS Section 409A to set tax-compliant option strike prices.

## Industry Applications & Real-World Use Cases
IRS tax code compliance audits

## Frequently Asked Questions

### How often must a startup get a 409A valuation?
Every 12 months, or immediately following any event that materially affects the company's value (like a funding round).

### What happens if a startup sets option prices without a 409A?
Employees can face massive tax penalties, interest charges, and audit fines on their option grants.

## Related Terminology
- [fair-market-value](https://spidits.com/startup-glossary/fair-market-value)
- [strike-price](https://spidits.com/startup-glossary/strike-price)
- [esop](https://spidits.com/startup-glossary/esop)

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*From the SPIDITS AI Knowledge Base (300+ terms indexed). Explore full technical definitions: [https://spidits.com/startup-glossary](https://spidits.com/startup-glossary)*