SECTION 1. PURPOSE

This revenue procedure sets forth a methodology to value for gift, estate, and generation-skipping transfer tax (“transfer tax”) purposes certain compensatory stock options described in Section 3 of this revenue procedure. Taxpayers relying on this revenue procedure may use an option pricing model that takes into account on the valuation date specific factors that are similar to those established by the Financial Accounting Standards Board in Accounting for Stock-Based Compensation, Statement of Financial Accounting Standards No. 123, (Fin. Accounting Standards Bd. 1995), (FAS 123). The Internal Revenue Service will treat the value of a compensatory stock option as properly determined for transfer tax purposes, provided that the requirements of this revenue procedure are met.