The Section 409A regulation of the United States Internal Revenue Code mandates that a privately held company cannot issue stock options to employees below the Fair Market Value. Stock options or Equity-based compensation needs to be issued at or above fair value in order to avoid significant tax penalties, including federal and varying state tax penalties. Furthermore, such Fair Market Value should ideally be determined by an independent third party Appraiser in order to qualify for safe harbor under IRC Section 409A.
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