Episode summary
Talking Trusts & Estates for Advisors: IRC Section 409A and Gift Tax Valuations
Summary
The discussion contrasts IRC Section 409A valuations with gift tax valuations for private-company equity. The guest explains that 409A is a compliance-driven rule for nonqualified deferred compensation, such as stock options, deferred bonuses, and RSUs, and is designed to establish a defensible price for future compensation. By contrast, gift and estate tax work requires a fair market value at the time of transfer, so a 409A number may be useful but is not automatically acceptable.
Timing is the main trap. A 409A valuation can remain in place for much of a year even if the company’s value changes materially, but a gift is taxed based on the transfer date. The guest warns that using an outdated valuation can understate the gift and potentially create additional transfer tax, penalties, and interest.
The guest also notes that gift tax valuations may include discounts for lack of control and lack of marketability, especially when only a minority stake is transferred in a private company. Best practice, he says, is to treat 409A as a starting point and bring in a qualified appraiser or CPA firm when the interest is being gifted or when the company has changed meaningfully.
Key takeaways
- The guest says IRC Section 409A is a compliance-driven valuation regime for deferred compensation, not a general estate planning valuation.
- A 409A valuation can stay valid for a year, but a gift tax valuation must reflect fair market value at the actual transfer date.
- Using a January 1 409A valuation for a December transfer can underreport a gift if the private company has grown significantly.
- The guest says minority interests can be discounted for lack of control and lack of marketability, which may make gift tax value lower than a simple pro rata share.
- The guest recommends a qualified appraiser or CPA firm when gifting private-company interests to reduce IRS audit risk and support the reported value.
Notable quotes
“section 409A or often just called a 409A valuation is part of the US tax code that really governs all types of different non-qualified deferred compensation plans”
“using a January 1 valuation from a 409A on a December 1st, 2026 transfer will not work from an IRS perspective”
“there's a minority discount that could be applied to that 1%. You don't actually have control of this company”
How the episode opens
Hi, I'm Susan Lip, editor and chief of Trust and Estates, and I'm speaking with Jamie Hopkins, CEO of Bidmar Trust Advisors LLC and chief wealth officer at Bidmar Trust. Today, we're talking about two valuation regimes, IRC section 409A valuations and gift tax valuations, and how they intersect. This topic was covered in an article in the February 2026 issue of trust and estates bridging section 409A and gift tax valuations by Michael Arlene and Nisha.
And it's important to understand when a section 409A valuation can support a gift tax position and when it can't because missteps can lead to IRS adjustments to reported gift values, penalties, and interest. So, let's get started. Jamie, the article I mentioned focuses on the importance of understanding IRC section 409A.
Let's start with some basics. What is section 409A?
Yeah, it's it's always good to start on just what are we even talking about when we mention code sections. So, uh section 409A or often just called a 409A valuation is part of the US tax code that really governs all types of different non-qualified deferred compensation plans. So, think about your clients that might have RSUs, um, deferred bonus arrangements or stock options.
And really, the idea is how are we going to come up with a valuation today for something that's earned now but received in the future. So, at its core, the whole idea for an IA was to prevent people from underestimating the value of something they are receiving to basically avoid or delay taxes further out. um but still allow for these deferred compensation arrangements to to work.
And so really what is then came about was a 409A valuation is required at the time of this deferred compensation. It is really for private companies a compliance-driven valuation mechanism as the article talks about.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- irc section 409a
- gift tax valuations
- valuation timing
- discounts lack of control
- irs audit risk best practices
Companies and tickers mentioned
- Bryn Mawr Trust
Watch the episode
Watch “Talking Trusts & Estates for Advisors: IRC Section 409A and Gift Tax Valuations” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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