Companies that provide any portion of an employees’ compensation in the form of securities are required to have a valuation of their common stock performed at least once every twelve months in order to satisfy IRS regulations regarding the sale of “cheap stock.”

In 2005, the IRS issued proposed regulations under IRC Section 409(A) that, for tax purposes, regulates the treatment of “nonqualified deferred compensation” including the issuance of compensatory stock options. The proposed regulations shifted the burden of proof to the IRS to demonstrate that the option exercise price is below the fair market value of the common stock when a company obtains an independent appraisal.

Immediately after publication of the proposed regulations, Cogent Valuation worked with the leading employee benefits attorneys and advisors to educate companies and their equity sponsors about the implications of the proposed regulations. This led to the establishment of Cogent Valuation as one of the preeminent appraisal firms in this rapidly emerging area of valuation.