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This article presents three principal theses: First, the courts and the Internal Revenue Service have misapplied the substance over form doctrine to the binding obligation cases under section 351 and in the process have created a hodgepodge of hopelessly irreconcilable and frequently wrong decisions. Part II of this article illustrates the inconsistencies and contradictions found in current law. Part III diagnoses the reason for this malaise: the unthinking, mechanical and therefore erroneous application of the step transaction doctrine. Part IV then develops the true function of the doctrine: to assure that clearly defined statutory purposes are not frustrated by plans which technically comply with the statute but defeat its purposes. The corollary that to correctly apply the step transaction doctrine, one must first discover the purpose of the statute — leads to an examination of the reasons for the 80% control requirement and the other requirements in section 351. Second, the reason traditionally ascribed for the 80% control requirement is faulty. The control requirement is usually explained as a means of differentiating between mere changes of form and changes of substance and restricting nonrecognition to the former. Part IV of the article shows that this rationale neither explains the way the statute operates in practice (which accords nonrecognition to major changes of substance) nor is it supported by the legislative history of section 351. Finally, the most reasonable explanation of the 80% control requirement of section 351 is that it serves as a device to prevent a corporation, particularly a publicly-held corporation, from using its stock as a medium of exchange for purchasing goods and property on a tax-free basis to its vendors. Without the control requirement, U.S. Steel could “sell” its steel to General Motors (GM) without recognizing any income simply by accepting GM stock in payment.16 The 80% control requirement prevents this result by limiting nonrecognition to transactions between a corporation and persons who are either insiders, shareholders owning 80% or more of the corporation's stock, or persons who become insiders by virtue of the transaction. Part V develops the historical and policy justifications for this interpretation of the control requirement, and Part VI illustrates how application of this new rationale brings increased order, consistency and predictability to questions arising under section 351.