Are there mandatory certifications? Can anyone issue a 409a valuation?

There are no mandatory certifications to perform a 409A valuation, but the IRS does require that an appraiser have significant knowledge, experience, education and training. When choosing a 409A provider there are a couple of things you should consider: the first is whether the individual meets the IRS standard, the second is does the individual have the experience and reputation that ensures you will receive a quality report.

On the first point, the IRS standard does not specify any certifications or specific qualifications to perform a 409A valuation. The IRS standard for “significant experience” from the 409A final regulations is as follows:

“Generally, a person will be qualified to perform such a valuation if a reasonable individual, upon being apprised of such knowledge, experience, education, and training, would reasonably rely on the advice of such person with respect to valuation in deciding whether to accept an offer to purchase or sell the stock being valued. For this purpose, significant experience generally means at least five years of relevant experience in business valuation or appraisal, financial accounting, investment banking, private equity, secured lending, or other comparable experience in the line of business or industry in which the service recipient operates.”

In general this could mean an MBA and/or CPA, someone with at least 5 years relevant experience, and specific training in 409A valuations.

The second thing to consider is does this person/firm have a reputation for producing a quality report?

As a firm we have seen valuations performed by individuals who may have met the IRS standard, but the reports they produced did not pass due diligence or audit standards. These sub-par reports are generally thin, we have seen them as short as 3 pages, with brief, unsubstantiated conclusions. These unsupported valuations can lead to serious implications for employees in two ways: if the stock was undervalued there are tax liabilities, or if the stock is overvalued then employees can be left with options that are under water.

When choosing a provider you should be sure that the appraisers have the knowledge, experience, and education required, that they have worked with external auditors (the Big 4 accounting firms often require more supporting information and detail than the IRS for 409A valuations), and that the report they produce will provide the necessary background and support for the valuation

If you are looking for a qualified, experienced, and cost effective 409A valuation provider, you have come to the right place.
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