Your 409A Expires in 30 Days. Here's What to Do

The 12-month clock is absolute

Under Treasury Reg §1.409A-1(b)(5)(iv)(B)↗, a 409A valuation is presumed to reflect fair market value for 12 months from the valuation date — provided no material event has occurred. After 12 months, the safe harbor lapses. There is no grace period. There is no "substantially compliant" exception. The clock runs from the valuation date on the report, not the date the report was delivered or the date your board adopted it.

Any options granted after the safe harbor lapses lack the presumption of reasonableness. That means the burden of proof shifts back to the company — the IRS doesn't need to prove your valuation was wrong; you need to prove it was right. That's a fundamentally different legal position. (See 409A Safe Harbor: The Legal Shield Every Startup Needs for the full explanation of why this matters.)

This is one of the most common compliance gaps in startup equity — and one of the most preventable. Founders forget the date. Nobody puts it on the calendar. The expiration passes silently, and grants keep going out at the old strike price.

What "expired" actually means in practice

An expired 409A doesn't mean your prior option grants are invalid. Grants issued while the 409A was current retain their safe harbor protection. The risk applies only to grants issued after expiration.

But the risk is real. If you've been granting options on an expired 409A without realizing it, those grants are in a compliance gray zone. The severity depends on what's happened since the valuation date:

If the company's value hasn't materially changed, the risk is relatively low. The prior FMV may still be defensible — the fact that it lacks safe harbor protection doesn't mean it's wrong, just that the burden falls on you to prove it's right.

If a material event occurred during the gap — a funding round, a major revenue change, a key executive departure — the risk is significantly higher. The prior FMV may no longer reflect the company's actual value. Grants issued at a stale price after a material event are the exact scenario the IRS designed Section 409A to address.

The worst case: options granted at a stale FMV after a major value-increasing event, where the gap between the old price and the actual FMV is large. Every affected grant carries penalty exposure for the employee. (See What Happens to Your Options If Your 409A Lapses for the full penalty analysis.)

What to do right now

If your 409A is approaching expiration — or has already expired — here's the action plan:

Step 1: Identify the expiration date. Pull your most recent 409A report. Find the valuation date (not the report date). Add exactly 12 months. That's your expiration date. If you've passed it, you're already in the gap.

Step 2: Stop granting options. Do not issue any new grants until a current 409A is in place. Every grant issued during the gap adds to the exposure.

Step 3: Get a refresh immediately. The new valuation re-establishes safe harbor from the new valuation date forward. The faster you close the gap, the fewer grants are at risk.

Step 4: Assess grants issued during the gap. If you granted options between the expiration date and the new valuation, consult your counsel about whether correction is needed. The IRS provides correction frameworks under Notice 2008-113↗ and Notice 2010-6↗. In many cases, if the FMV hasn't materially changed, no correction is needed — but the analysis should be documented.

The refresh is faster than the first engagement

If you're returning to the same provider, the refresh is significantly faster than a first-time valuation. The provider already has your capital structure, prior assumptions, and company context on file. You upload updated financials, flag any material changes (new hires, new revenue milestones, additional financing), and the analysis builds on the existing foundation.

This is where data persistence matters. A provider that retains your prior engagement data can deliver a refresh in a fraction of the time a new provider needs to start from scratch. If your prior provider didn't retain your data — or if you're switching — the new provider needs the full document set, plus your prior 409A report for consistency analysis.

How to never face this situation

The entire expiration scenario is preventable with one decision: choose a provider with an annual plan that includes as-needed refreshes and proactive monitoring.

Express 409A annual plan subscribers get advance notice before safe harbor expires. Your portal stays open year-round — your cap table, financials, and prior report assumptions are already loaded. When it's time for a refresh, you upload your latest financial statements and flag any changes. The refresh is delivered in 48 hours. When a material event hits mid-cycle — a new round, a major revenue milestone — you don't need to debate whether to spend the money on a new engagement. The coverage is already in place. You request a refresh, submit updated docs, and the new valuation is delivered in 48 hours.

The annual plan isn't just a discount on the per-engagement price. It's a compliance safety net that eliminates the most common 409A failure mode: forgetting the expiration date and continuing to grant.