It's a 50/50 chance the flag was either captured or left behind/hidden. Here is a website I found on the 8th Wisconsin Company "C" flag.
http://www.wisconsinbattleflags.com/units-flags/8th-wisconsin.php
I was looking up maps on the internet on Holly Springs and I just do not see where the 8th Wisconsin Infantry regiment was at. I do see the 29th Illinois and 62nd Illinois camps in Northwest of the town. At the Railroad depot to the east down Church Street, the 101st Illinois was camped. Now the 2nd Illinois Cavalry regiments was encamped North half way between Holly Springs and the R.R depot.
The Texas Cavalry Brigade under Colonel John S. Griffith (3rd Texas Cav, 6th Texas Cav, 9th Texas Cav, 1st Texas Legion and Willis' Texas Cav Battalion) were the only Confederate cavalry to ride west into Holly Springs (Town). If I had to point a finger out to what command possibly captured the 8th Wisconsin "C" flag, it was Colonel Griffith's brigade.
I certainly do not believe the 29th Illinois and 62nd Illinois, 101th Illinois and 2nd Illinois Cavalry had the 8th Wisconsin's "C" flag with them. Since Colonel Murphy was the old Colonel of the 8th Wisconsin, I believe he may have used that has his headquarters flag or some capacity that flag was with him. Colonel Murphy was reported captured outside of his headquarters in town, in his night shirt. A few days later he was paroled and sent North.
So from there, either the flag was captured or hidden in Colonel Murphy's HQ.
On the flag site of the 8th Wisconsin, I posted that link. "It was later re-captured in brave "one man raid" by LT. Thomas Paul, Company K, 11th Illinois Cavalry."
I believe the flag was hidden and LT. Paul rode into Holly Springs, (After Van Dorn's men left) and found the flag.
I could be wrong, always feel free to correct me.
Have a good day,
Shawn Prouty