Compliance
When to Update Your 409A Valuation: The Trigger Events That Beat the Calendar
Your 409A has two expiry dates, and only one of them is the 12-month mark. What the regulation counts as a material event, and when to stop granting options.
By 409.AI Team - 2026-08-31
A board approves a batch of option grants in October. The company's 409A was completed in March, so the calendar says everything is fine: seven months old, five months of runway left. What nobody flags is that the Series B closed three weeks earlier at four times the prior round's valuation. That March valuation is still inside its 12 months, and it is already unusable.
This is the part of 409A compliance that catches out companies that are otherwise careful. They track the anniversary. The regulation tracks two things, and the anniversary is the less dangerous of them.
The regulation gives you two expiry dates, not one
Treasury Regulation [§1.409A-1(b)(5)(iv)(B)(1)](https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.409A-1) sets the standard for private company stock: fair market value means "a value determined by the reasonable application of a reasonable valuation method." Then it tells you when a value you already have stops qualifying:
> the use of a value previously calculated under a valuation method is not reasonable as of a later date if such calculation fails to reflect information available after the date of the calculation that may materially affect the value of the corporation (for example, the resolution of material litigation or the issuance of a patent) or the value was calculated with respect to a date that is more than 12 months earlier than the date for which the valuation is being used.
Read the "or" carefully. Those are two independent ways to kill a valuation, and only one of them is a date you can put in a calendar. The other fires whenever something happens that a valuation done today would have to account for.
The safe harbor sits on top of that. Under §1.409A-1(b)(5)(iv)(B)(2)(i), an independent appraisal is presumed reasonable if it was made "as of a date that is no more than 12 months before the relevant transaction to which the valuation is applied (for example, the date of grant of a stock option)." Companies without a 10-year operating history can instead rely on the illiquid start-up presumption in (B)(2)(iii), which requires a written report prepared by someone with significant relevant experience, generally at least five years of it. Either way the IRS can rebut the presumption by showing the method or its application was "grossly unreasonable." We covered what earns that protection in more detail in [409A Safe Harbor: What Actually Earns It](https://409.ai/articles/409a-safe-harbor-price-vs-qualified-appraiser).
The presumption is worth having because it flips the burden of proof. But it is a presumption about a valuation that is still reasonable. A material event undoes the reasonableness, and the presumption goes with it.
What "material" means, and what it doesn't
The regulation doesn't publish a list of triggers. It gives a standard, information that "may materially affect the value of the corporation," and two examples: resolved litigation and an issued patent. That's it.
So the test is about value, not about how eventful the quarter felt. Hiring a VP of Sales is news. It is rarely a repricing of the company. Signing a term sheet at three times your last round is a repricing whether or not it has closed.
One correction worth making, because it circulates a lot: the regulation contains no deadline for refreshing after a material event. There is no "you have 90 days" rule, and no post-event grace period. The 30, 60 or 90-day conventions you'll see quoted are operating practice, not regulation. What the regulation cares about is the date of the grant. If a grant lands after the trigger and before the new valuation, the timing of the refresh doesn't repair it.
The trigger list
A priced financing round
This is the most common one and the least excusable, because the close date is known months in advance. A new preferred round gives an appraiser a fresh arm's-length transaction in your own securities, which the regulation names directly as a factor: "recent arm's length transactions involving the sale or transfer of such stock or equity interests."
The effect on common stock is not proportional, which is why guessing doesn't work. A company that raised a seed at $12M post might carry a common FMV around $0.30. Close a $60M post-money Series A and the common FMV doesn't move to $1.50; the new preferred stack takes its liquidation preference off the top first, and the allocation model decides what's left for common. It might land at $0.55. Our walkthrough of [OPM, PWERM and the backsolve](https://409.ai/articles/409a-allocation-methods-opm-pwerm-backsolve) covers how that split gets made.
Unpriced money counts too. Converting notes and SAFEs change the capital structure the model is solving over, which is why [every SAFE you sign shows up in your 409A](https://409.ai/articles/how-safes-affect-your-409a-valuation) well before it converts.
A tender offer or a meaningful secondary
When employees or early investors sell common stock to a buyer at arm's length, someone has just paid a real price for the exact security your 409A is valuing. That's the strongest evidence in the file, and it usually pushes the strike price up. [Tender offers and secondary sales](https://409.ai/articles/tender-offers-secondary-sales-409a-valuation) are the clearest case where a company runs a program to reward its team and hands itself a valuation trigger in the same motion.
Size and structure matter. A single early employee selling 2,000 shares to a friend isn't a market. A tender covering a meaningful share of the common, open to a class of holders, is.
A down round, a bridge on hard terms, or a repricing
Value moving down is just as material as value moving up, and it comes with a second problem: options granted at the old, higher strike are now underwater, and the fix usually involves repricing. Repricing is itself a transaction that needs a current FMV, and it interacts with 409A, ISO and ASC 718 rules at once. [Down rounds and underwater options](https://409.ai/articles/down-round-409a-underwater-options-repricing) walks through doing it without creating a new problem.
A step change in the business
This is the category the regulation's own examples live in. Winning or losing a customer that represents 40% of revenue. Regulatory clearance for the product the whole plan depends on. A patent grant, or a court resolving the case that could have ended the company. A founder leaving. The question to ask is not whether it was significant to you, but whether an appraiser starting fresh today would build a different model because of it.
Getting close to a change in control or an IPO
This one is specific, sits in the regulation, and almost nobody tracks it. The illiquid start-up presumption in (B)(2)(iii) does not apply at all if the company "may reasonably anticipate, as of the time the valuation is applied," that it will undergo a change in control event within the following 90 days, or make a public offering of securities within the following 180 days.
That is not a refresh trigger. It's the presumption switching off entirely. Once an acquisition or an IPO is genuinely in view on those horizons, a good-faith written report stops carrying safe harbor on its own, and the scrutiny arrives from a second direction as well: [the SEC applies hindsight to pre-IPO option grants](https://409.ai/articles/cheap-stock-pre-ipo-409a-sec-option-grants) when it reviews the registration statement.
The calendar
Still real, and still worth stating precisely: the 12 months run from the valuation date, the date the value is calculated as of, not the date the PDF arrived. Those are often four to six weeks apart. A report delivered in mid-February with a January 31 measurement date expires at the end of January, not in February.
Why the grant date is where the damage happens
The regulation attaches the valuation to "the relevant transaction to which the valuation is applied." For your team, that transaction is the grant. Not the offer letter, not the quarter, not the board meeting where the pool was approved in principle. The board consent that actually grants the options.
That's why the expensive version of this mistake is procedural rather than analytical. The company knows the round closed. It has even ordered the refresh. It just also signed a grant consent in the gap.
The math falls on the employee. A discounted option fails the exclusion for stock rights, so §409A applies to it. Under [26 U.S.C. §409A(a)(1)](https://www.law.cornell.edu/uscode/text/26/409A), the deferred amount goes into gross income, and §409A(a)(1)(B) adds an additional tax of 20% of that amount plus interest at the underpayment rate plus one percentage point. Say an engineer received 10,000 options at a $1.10 strike from the stale valuation, when a current one would have supported $2.60. The discount baked in at grant is $15,000, and that is the floor rather than the final number, because the amount that comes into income is measured against the stock's value as the shares vest. On $15,000 the additional tax alone is $3,000, sitting on top of ordinary income tax, with interest accruing from the original deferral. Multiply by the thirty people in the same grant batch. If the grants were meant to be ISOs, there's a separate failure: §422(b)(4) requires the exercise price to be at least FMV at grant, so a discounted grant isn't an ISO either.
Fixing it after the fact is possible in some cases and never cheap. [Missing a 409A deadline and correcting it](https://409.ai/articles/409a-valuation-deadline-correction-procedures) covers what remediation actually involves.
The operating version
Put one line in the board consent template: confirm the valuation date of the current 409A and confirm that no material event has occurred since it. Whoever prepares the consent has to answer it before signatures go out.
Then freeze grants at the trigger, not at the refresh order. The moment a round closes, a tender prices, or a bet resolves, grants stop until the new valuation lands. That's a two to three week pause on a scheduled refresh, and it's the entire cost of avoiding everything above. Companies that grant continuously should be running the refresh in parallel with the closing, not after it.
Keep the file, too. A defensible 409A is a set of dated documents that agree with each other: the valuation date, the board consents, the closing documents, the cap table as of each. [What the IRS asks for when it examines a 409A](https://409.ai/articles/irs-audit-409a-valuation-document-request) is mostly a request for that file.
The useful reframe is this: your 409A doesn't have an expiry date, it has an expiry condition, and the 12-month mark is only the version of it you can see coming. Track the events, and the calendar takes care of itself. If a round, a tender or an inflection just happened, you can [order the refresh](https://409.ai/products/409a) before the next consent goes out rather than after.