A Practice Note examining issues arising from grants of equity compensation by a private company at prices below its eventual initial public offering (IPO) stock price. The Note discusses the SEC's pre-IPO review process for such issuances of "cheap stock," including its acceptance of third party valuations, and related tax and accounting issues. The Note also identifies best practices for common stock valuation to assist a pre-IPO company in minimizing the risk that it will have to record cheap stock charges on its income statement as a result of the SEC's review.