Does a down round reduce taxes on past RSU vests?

Generally no—RSU wage income is recognized at vest based on FMV then; later price drops affect investment value and capital gains/losses on sale.

How does a lower 409A affect new options?

New grants often have lower strikes, reducing future exercise spread and potentially AMT for ISOs exercised later.

Are underwater options automatically repriced?

No—repricing requires board approval and has accounting and tax consequences.

Does AMT credit disappear after a down round?

Prior AMT credits remain tracked; see the AMT credit recovery guide.

What should I coordinate with a CPA?

Exercise timing, repricing proposals, and ISO disqualifying dispositions.

Which guide covers 409A basics?

See the Section 409A valuation guide.

Down Rounds & 409A Resets: Tax Implications for Equity Compensation

Key Takeaways

409A is a compliance framework for deferred compensation—FMV must be reasonable methodology

RSU taxation is usually at vest based on FMV then—past vests are not revisited because FMV later dropped

ISO AMT depends on spread at exercise—lower FMV can reduce future AMT if you exercise after reset

Down rounds signal business risk—liquidity and job security may dominate tax nuance

Repricing can be taxable and may affect ISO status—board approval required

Executive Summary

Quick Answer

Does a down round reduce taxes on RSUs I already vested?

Source: IRC Section 83 timing

Quick Answer

How does a lower 409A help stock options?

Source: Option mechanics

Quick Answer

What is the biggest ISO planning change after a reset?

Source: Form 6251 bargain element

Diagram: down round leads to lower 409A FMV and lower strike prices for new option grants and smaller future spread — **Figure 1:** Forward-looking effect on new grants—past tax years are not rewritten.

What a 409A Reset Actually Updates

Item	Typically updated?
New option strike prices	Yes (for new grants)
Past RSU vests	No
Already-exercised ISO/NSO	No retroactive tax redo
AMT credit carryforward	Still tracked—see AMT credit guide

Past RSU vesting versus future option grants after a 409A reset: wage income timing versus new strike prices — **Figure 2:** Why “409A dropped” does not mean “my old W-2 changes.”

Underwater Options: Strategic Angles (Not Advice)

Path	Notes
Wait	No tax on exercise if you don’t exercise
Repricing / exchange	Corporate action; may affect ISO status
Leave job	Exercise windows—leaving guide

Worked Example (Illustrative)

Assume FMV falls from $10 to $4 for new grants:

New options may strike near $4, shrinking future spread vs $10 strikes for older grants (if any remain).

Underwater stock options concept when market price falls below exercise price — **Figure 3:** Underwater options are an economic problem before they are a tax problem.

Disclaimer

Educational only—consult a tax advisor for repricing and 409A questions.

Primary sources

Source	URL
IRC §409A	https://www.law.cornell.edu/uscode/text/26/409A

Executive Summary

Does a down round reduce taxes on RSUs I already vested?

How does a lower 409A help stock options?

What is the biggest ISO planning change after a reset?

What a 409A Reset Actually Updates

Underwater Options: Strategic Angles (Not Advice)

Worked Example (Illustrative)

Related tools

Disclaimer

Primary sources