                               NOT FOR PUBLICATION

                        UNITED STATES COURT OF APPEALS                          FILED
                               FOR THE NINTH CIRCUIT                            DEC 03 2012

                                                                             MOLLY C. DWYER, CLERK
                                                                              U.S. COURT OF APPEALS

FLEXTRONICS AMERICA, As                           No. 11-70949
alternative agent for C-Mac Holdings, Inc.
and Subsidiaries consolidated group,              Tax Ct. No. 9543-07

                  Petitioner - Appellee,
                                                  MEMORANDUM*
  v.

COMMISSIONER OF INTERNAL
REVENUE,

                  Respondent - Appellant.


                 Appeal from a Decision of the United States Tax Court
                Maurice B. Foley, United States Tax Court Judge, Presiding

                         Argued and Submitted October 19, 2012
                               San Francisco, California

Before: HAWKINS, N.R. SMITH,** and MURGUIA, Circuit Judges.




            *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
       **
             Judge N.R. Smith was drawn to replace Judge Betty Binns Fletcher.
Judge Smith has read the briefs, reviewed the record and listened to oral arguments
that were held on October 19, 2012.
      The tax court did not clearly err in finding that C-MAC’s purchase of the

Creedmoor inventory (in advance of acquiring the Creedmoor facility) was not a

sham transaction. Sparkman v. Comm’r, 509 F.3d 1149, 1155 (9th Cir. 2007);

Coltec Indus., Inc. v. United States, 454 F.3d 1340, 1356 (Fed. Cir. 2006) (“[T]he

transaction to be analyzed is the one that gave rise to the alleged tax benefit.”).

Dennis Wood, CEO of C-MAC, testified that C-MAC could use the inventory in

its other businesses. The tax court specifically identified this testimony as

“credible.” Wood also testified that C-MAC “was” using the inventory, and that

he didn’t “do deals for tax advantage.” Accordingly, there was a “business

purpose for engaging in the transaction other than tax avoidance.” Bail Bonds by

Marvin Nelson, Inc. v. Comm’r, 820 F.2d 1543, 1549 (9th Cir. 1987).

      The transaction also had economic substance because, as the Tax Court

found, it had “practical economic effects other than the creation of income tax

losses.” Casebeer v. Comm’r, 909 F.2d 1360, 1363 (9th Cir. 1990); see also Bail

Bonds, 820 F.2d at 1548 (“A transaction is a sham if it has no purpose or economic

effect other than the creation of tax deductions.”) (emphasis added). Looking at

the “dry pages of the record,” United States v. Alston, 974 F.2d 1206, 1212 (9th

Cir. 1992), reasonable minds could disagree with the Tax Court’s conclusion that

the transaction was not a sham. However, we cannot say that it was clearly


                                          -2-
erroneous for the tax court to conclude—based on the available evidence—that the

transaction had some practical effects other than the creation of income tax losses.

      After acquiring the inventory, C-MAC was required to insure it and bore the

risk of loss. Further, C-MAC pledged the inventory as collateral for loans from

four banks. The inventory transaction also effected part of the capitalization of

Network Systems by providing inventory that it would later use to operate the

Creedmoor facility. Further, that capitalization happened through a series of § 351

transactions, which permitted C-MAC to establish its desired ownership structure

across an international web of business entities.1 Additionally, after acquiring the

inventory, Interconnect sold $279,795.75 of it to C-MAC Quartz Crystals Ltd. in

response to that facility’s requirements.

      Owing particular deference to “[t]he expertise that the Tax Court brings to

bear in its consideration of these complex factual situations,” Casebeer, 909 F.2d

at 1362, we cannot say the Tax Court reached a conclusion that was “(1) illogical,

(2) implausible, or (3) without support in inferences that may be drawn from the

facts in the record.” Meruelo v. Comm’r, 691 F.3d 1108, 1114 (9th Cir. 2012).

      1
        Because the inventory transactions helped C-MAC set up its desired
operating structure and capitalize Network systems, no step appears to be
meaningless. Accordingly, the Tax Court did not clearly err in finding the step
transaction doctrine inapplicable in this case. See Linton v. United States, 630 F.3d
1211, 1224 (9th Cir. 2011).

                                            -3-
AFFIRMED.

Judge Hawkins concurs in the judgment.




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