Bridging Section409A And Gift Tax Valuations

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January 26, 2026

Bridging Section409A And Gift Tax Valuations

Wealth Management

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As estate planning and executive compensation strategies become increasingly sophisticated, the intersection of Internal Revenue Code Section 409A valuations and gift tax valuations has emerged as a critical area of focus for attorneys, CPAs and valuation professionals.

While both valuation regimes aim to determine the value of private company stock, they serve distinct legal purposes and are governed by different standards. It’s important to state that an IRC Section 409A valuation isn’t considered a fair market value (FMV) standard under IRC Section 2512. Rather, it’s a compliance-driven valuation designed specifically for regulating deferred compensation. Yet, in practice, these valuations often overlap, creating both opportunities and risks.

This convergence is particularly relevant in today’s environment of Internal Revenue Service scrutiny, increased use of equity-based compensation and aggressive estate-planning strategies. Practitioners must be vigilant in understanding when a Section 409A valuation can support a gift tax position, and when it can’t. Missteps can lead to IRS adjustments to reported gift values, as well as penalties and interest. In rare cases, the IRS may challenge specific planning structures.

Let’s explore the key differences between Section 409A and gift tax valuations, identify areas where the lines blur and provide practical guidance for leveraging synergies while avoiding common pitfalls.

To continue reading Michael Arlein's article in Wealth Management, please click here.

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