Flextronics America v. Commissioner

NOT FOR PUBLICATION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
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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).
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AFFIRMED.
Judge Hawkins concurs in the judgment.
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