Stanford Law School - Robert Crown Law Library

Filed 6/8/06

IN THE SUPREME COURT OF CALIFORNIA

BAYARD M. ORDLOCK et al.,
Plaintiffs
and
Appellants,
S127649
v.
Ct.App. 2/1, B169465
FRANCHISE TAX BOARD,
Los Angeles County
Defendant and Respondent.
Super. Ct. No. BC278386

California personal income tax law references its federal counterpart as the
basis upon which to calculate a taxpayer’s state taxable income and, ultimately,
the state income tax owed for a specified tax period. California law does so by
recognizing the amount reported as taxable income in the taxpayer’s federal
income tax return and then applying adjustments to that amount as required by
state law. Accordingly, in the majority of cases, a determination in an audit by the
Internal Revenue Service (IRS) that a California taxpayer’s federal personal
income tax liability is greater than reported in his or her federal income tax return
also will effect an increase in the taxpayer’s state personal income tax liability.
In general, when a California taxpayer owes additional state personal
income tax for a particular tax year, and unless another provision of the Revenue
and Taxation Code applies, section 19057 of that code requires that the California
Franchise Tax Board (FTB) provide notice to the taxpayer of any deficiency
assessment within four years of the date on which the taxpayer filed his or her
state income tax return for the tax year in question. In the specific circumstance in
which a California taxpayer receives a final IRS determination changing or
correcting his or her federal personal income tax return for a particular tax year,
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Revenue and Taxation Code section 18622 requires that within six months, the
taxpayer report to the FTB any federal adjustment that will increase the taxpayer’s
state tax payable for the same period.1 When the taxpayer reports such an
adjustment within six months, the FTB must provide notice of any related
deficiency assessment within two years. (§ 19059.) When the taxpayer fails to
report such an adjustment, the FTB may give notice of a deficiency assessment at
any time. (§ 19060.)
In the present case, the IRS audited the federal income tax return of the
taxpayers, plaintiffs Bayard M. Ordlock and Lois S. Ordlock, for a particular tax
year and eventually determined — more than four years after the date on which
the taxpayers filed their federal and state income tax returns for that tax year —
that the taxpayers received greater taxable income than they reported and owed
additional federal income taxes. Although the change in federal taxable income
had the effect of increasing the taxpayers’ state taxable income and income tax for
the same period, they did not report the federal adjustments to the FTB pursuant to
section 18622. Following their unsuccessful administrative appeal of the state’s
eventual deficiency assessment and their payment of the assessed taxes, the
taxpayers filed a civil action seeking a refund. The appellate court agreed with the
taxpayers that, because the four-year period prescribed by section 19057 for the
FTB to provide notice of any deficiency assessment had expired prior to the final
IRS determination of the taxpayers’ additional federal tax liability, the taxpayers
were not required to report the federal changes or pay the additional state taxes
assessed.
We consider the correctness of the Court of Appeal’s holding. As we shall
explain, in affording the FTB a four-year period of limitations in which to notify a
taxpayer of a state tax deficiency assessment, section 19057 by its terms does not

1
All statutory references are to the Revenue and Taxation Code unless
otherwise indicated.
2

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establish an outermost time limit for notification by that agency in all
circumstances. Instead, an alternative period of limitation applies when, after the
taxpayer files his or her tax return, the IRS intervenes and finally determines that
the taxpayer’s federal taxable income and tax liability are greater than reported in
his or her federal return for a particular tax year, with resulting increases in state
taxable income and the amount of state income tax calculated thereon for the same
period. In the event of such IRS intervention, section 19059 or section 19060
provides an alternative period during which the FTB may notify the taxpayer of a
deficiency assessment, the duration of which depends upon when or whether the
taxpayer reports to the FTB the final results of the federal authorities’ examination
of the taxpayer’s return.
In the present case, the taxpayers failed entirely to report pursuant to
section 18622 the federal changes that increased their state income tax liability.
As a consequence, the FTB had an unlimited time in which to issue its notice of a
deficiency assessment pursuant to section 19060. Accordingly, we reverse the
judgment of the Court of Appeal.
I
The material facts are not in dispute. Having obtained an automatic
extension, plaintiffs Bayard M. and Lois S. Ordlock in May 1984 timely filed, as
married, filing jointly, their federal and state personal income tax returns for the
1983 tax year. Their federal income tax return reflected their having taken, as
deductions, certain expenses related to three partnerships in which Mr. Ordlock
held minority interests.
Thereafter, the IRS commenced partnership-level audits of the partnerships’
federal tax returns for 1983 and subsequent tax years. Eventually, the IRS offered
and plaintiffs accepted a settlement with regard to their interests in two of the
partnerships reported on their 1983 federal income tax return. In 1994, the IRS
issued a report of tax examination changes reflecting disallowances of deductions
attributable to those partnership interests. In 1996, the IRS issued a report of tax
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examination disallowances of deductions related to the third partnership interest,
as well as a final report reflecting an increase in plaintiffs’ federal taxable income
for the 1983 tax year. Although the increase in their federal taxable income also
caused an increase in their state taxable income and the state taxes calculated
thereon for 1983, plaintiffs did not notify defendant FTB of the interim or final
IRS audit reports of income tax changes.
In May 1998, defendant mailed plaintiffs a notice of proposed assessment
of additional state income tax for the 1983 tax year in the amount of $12,350, with
accumulated interest in the amount of $35,215.62, based upon the increase in state
taxable income resulting from the increase in federal taxable income determined in
the IRS tax audit. Defendant’s notice advised plaintiffs that pursuant to section
18622, they must report any federal changes resulting in increased state taxes
payable “for any year.”
Plaintiffs timely filed a tax protest, principally on the ground that, pursuant
to section 19057, defendant must provide notice of any deficiency assessment
within four years from the date on which plaintiffs filed their 1983 income tax
returns in May 1984 — and that this period had expired in May 1988, well before
the IRS made its final determination adjusting plaintiffs’ 1983 federal income
taxes. According to plaintiffs, because defendant was precluded by operation of
section 19057 from assessing additional state taxes after May 1988, the federal tax
changes rendered by the IRS more than 10 years later did not, and could not,
“increase the amount of tax payable under this part” as provided in section 18622,
subdivision (a). Plaintiffs asserted that this circumstance absolved them of any
statutory duty to report the federal tax changes to defendant. In January 2000,
defendant denied plaintiffs’ tax protest. Subsequently the State Board of
Equalization (SBE) denied plaintiffs’ administrative appeal and petition for
rehearing.
In January 2002, defendant mailed plaintiffs a revised notice of state tax
due for the 1983 tax year in the amount of $12,350, with accumulated interest in
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the amount of $52,297.67, totaling $64,647.67. Plaintiffs paid the tax portion of
the total amount under protest and filed with the SBE a claim for a refund, which
was denied.
In July 2002, plaintiffs filed in the superior court an action against
defendant seeking a refund of the taxes paid under protest and alleging that
defendant was precluded from issuing a notice of the proposed assessment for the
1983 tax year after the four-year period of limitations provided by section 19057
had expired. After defendant filed an answer to the complaint, both parties moved
for summary judgment. Plaintiffs continued to assert that the expiration of the
four-year period of limitations set forth in section 19057 barred defendant from
initiating any deficiency assessment, and thus relieved plaintiffs of any duty under
section 18622 to report to defendant the subsequent IRS changes to their federal
tax liability that increased the state taxes they owed. Defendant urged that,
because plaintiffs failed to comply with section 18622 by reporting the increase in
plaintiffs’ 1983 state taxes payable within six months of the final determinations
by the IRS in 1994 and 1996 that increased plaintiffs’ 1983 federal tax liability,
section 19060 afforded defendant the opportunity to assess a deficiency for the
1983 tax year “at any time.”
The trial court denied plaintiffs’ motion and granted defendant’s motion for
summary judgment. The court determined that section 19057 did not bar
defendant from assessing additional state taxes for the 1983 tax year because, by
its terms, section 18622 required plaintiffs to report to defendant corrections by
the IRS to plaintiffs’ federal tax return “for any year” that changed their federal
tax liability and increased the state taxes they owed. Because plaintiffs failed to
report the changes to defendant, section 19060 applied, permitting defendant to
mail a notice of deficiency assessment “at any time.”
The Court of Appeal concluded to the contrary that, by operation of section
19057, defendant was precluded from assessing additional state tax for the 1983
tax year prior to the IRS determination increasing plaintiffs’ federal tax liability
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for that period. Reasoning that section 18622 did not act to revive or sustain
defendant’s authority to impose additional taxes once the four-year period of
limitations set forth in section 19057 had expired in 1988, the Court of Appeal
reversed the judgment rendered by the trial court. We granted defendant’s petition
for review.
II
A
As we have observed, California income tax law generally is based upon
federal income tax law. (9 Witkin, Summary of Cal. Law (9th ed. 1989) Taxation,
§ 287, p. 344.) State law provides that subject to exceptions, gross income,
adjusted gross income, and taxable income for state tax purposes are defined as
their equivalents for federal tax purposes. (See §§ 17071, 17072, & 17073, subd.
(a).) Thus, an increase in the amount of a taxpayer’s federal taxable income
generally will signify an increase in the amount of his or her state taxable income.
Several years ago, the Legislature amended Revenue and Taxation Code,
division 2 to add part 10.2, Administration of Franchise and Income Tax Laws,
encompassing sections 18401 through 19802 and including the sections relevant in
the present case. (Stats. 1993, ch. 31, § 26, p. 165.) The former version of section
18622, subdivision (a), as enacted and also amended in that year, is the version
operative here, as the parties agree.2 (Stats.1993, ch. 877, § 23.1, p. 4712.) Until
its further amendment in 1999, section 18622, subdivision (a) provided, as
relevant to our discussion: “If the amount of gross income or deductions for any
year of any taxpayer as returned to the United States Treasury Department is
changed or corrected by the Commissioner of Internal Revenue . . . that taxpayer

2
As did the Court of Appeal, for convenience we shall refer to sections
18622, 19059, and 19060 “with the understanding that we are referring to the
former versions of the statutes.” (§ 18622, as amended by Stats. 1993, ch. 877,
§ 23.1, p. 4712; § 19059, as amended by Stats. 1993, ch. 877, § 28, p. 4717;
§ 19060, added by Stats. 1993, ch. 31, § 26, p. 217.)
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shall report the change or correction . . . within six months after the final federal
determination of the change or correction . . . or as required by the Franchise Tax
Board, and shall concede the accuracy of the determination or state wherein it is
erroneous. The changes or corrections need not be reported unless they increase
the amount of tax payable under this part.” (§ 18622, subd. (a) as amended by
Stats. 1993, ch. 877, § 23.1, p. 4712, italics added.) As is clear, the last sentence
refers to part 10.2.3
In imposing a general duty upon a state taxpayer to report an adjustment in
federal gross income or deductions engendered by, among several possible causes,
an IRS audit of the taxpayer’s federal tax return for a particular tax year, section
18622, subdivision (a) specifically exempts the taxpayer from the duty to report
whenever the federal adjustment does not increase the amount of his or her
payable state tax. Although in most instances federal changes will result in an
increase in the amount of state tax, an increase does not occur, for example, when

3
In 1999, the Legislature rewrote the final sentence of section 18622,
subdivision (a), which formerly referred to the part of the code inclusive of that
section — part 10.2 — to provide: “For any individual subject to tax under Part
10 (commencing with Section 17001), changes or corrections need not be reported
unless they increase the amount of tax payable under Part 10 (commencing with
Section 17001) for any year.” (Stats. 1999, ch. 987, § 56, eff. Oct. 10, 1999, italics
added.) Part 10, Personal Income Tax, is comprised of sections 17001 through
18180 (defining and calculating gross income, adjusted gross income, and taxable
income, as well as imposing tax), and does not include the sections that are the
subjects of the parties’ dispute in the present case. Although the question is not
before us, it may be surmised that the Legislature intended to clarify that “the
amount of tax payable” referred to the tax imposed upon taxable income as
required by the statutes that appear within part 10.

The Legislature also provided in the 1999 amendment: “The amendments
made by this act to Sections 18622, 19059, 19060, and 19311 of the Revenue and
Taxation Code apply to federal determinations that become final (as defined by
this act) on or after January 1, 2000.” (Stats. 1999, ch. 987, § 105.) In the present
case, the federal determinations became final prior to January 1, 2000, and thus the
earlier versions of sections 18622, 19059, and 19060 apply.
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the amount of a taxpayer’s federal itemized deduction for state taxes paid is
adjusted downward. Although that adjustment will have the effect of increasing
taxable income for federal tax purposes, it will not have any impact on state
taxable income because, of course, there is no corresponding deduction on the
state tax return.
As might be expected, defendant contends that the final sentence of section
18622, subdivision (a) — providing that “[federal] changes or corrections need not
be reported unless they increase the amount of tax payable under this part” —
merely excludes those changes in federal tax liability that do not also effect an
increase in the amount of state taxable income and state tax payable for the tax
year in question, as in the example above. Defendant observes that in plaintiffs’
case, the IRS’s changes to their federal tax liability also increased their state tax
liability, requiring them to report the federal changes. Because plaintiffs failed to
report the federal changes pursuant to section 18622, subdivision (a), defendant
claims it could give them notice of the deficiency assessment at any time pursuant
to section 19060.
By contrast, plaintiffs assert and the Court of Appeal reasoned that the final
sentence of section 18622, subdivision (a) also could refer, and here does refer, to
IRS adjustments increasing federal taxable income and consequently to state
taxable income that generates additional state income tax — tax that has become
“payable” because defendant has sent plaintiffs a notice of a proposed deficiency
assessment. Relying upon the four-year limitations period provided by section
19057, plaintiffs claim that by 1988, defendant was precluded from issuing and
enforcing a state income tax deficiency assessment of any kind for the 1983 tax
year, regardless of the circumstance that the subsequent IRS examination changed
the taxpayers’ federal tax liability for that period. Accordingly, section 18622,
subdivision (a) did not require plaintiffs to report, and they did not report, the
federal changes.
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At first blush, these diverse interpretations of the final sentence in section
18622, subdivision (a) appear to warrant consideration not only of general
principles of statutory construction (see, e.g., Lennane v. Franchise Tax Bd.
(1994) 9 Cal.4th 263, 268), but also of rules that apply when statutory language
fairly admitting of two reasonable constructions is deemed ambiguous. (See, e.g.,
Flannery v. Prentice (2001) 26 Cal.4th 572 , 579; Hoechst Celanese Corp. v.
Franchise Tax Bd. (2001) 25 Cal.4th 508, 520-522.) In the latter event, defendant
urges that we apply the rule that a court charged with interpreting an ambiguous
statute must accord great weight to its administrative construction (citing Mudd v.
McColgan (1947) 30 Cal.2d 463, 470; Coca-Cola Co. v. State Bd. of Equalization
(1945) 25 Cal.2d 918, 921), whereas plaintiffs emphasize, and the Court of Appeal
cited, the principle that ambiguity in a tax statute must be resolved in favor of the
taxpayer. (Agnew v. State Bd. of Equalization (1999) 21 Cal.4th 310, 329-330;
Edison California Stores v. McColgan (1947) 30 Cal.2d 472, 476.)
On further consideration, however, we observe that plaintiffs’ construction
of section 18622, subdivision (a) is premised upon the applicability of section
19057 to foreclose defendant from giving notice to plaintiffs of any deficiency
assessment after the expiration of the four-year period, irrespective of the impetus
for the assessment, and to render defendant’s notice of proposed assessment of no
effect. If section 19057 does not apply in the present case, then the premise for
plaintiffs’ interpretation of section 18622, subdivision (a) disappears. We do not
have any occasion to decide which is the most reasonable construction of section
18622, subdivision (a), based upon a perceived ambiguity in that statute, unless we
determine that plaintiffs’ construction of the statute, premised upon the
applicability of section 19057, is reasonable. (See Flannery v. Prentice, supra, 26
Cal.4th 572, 579.) Accordingly, we first decide whether section 19057, rather
than another statute of limitations, actually does apply in the event the IRS has
made changes increasing federal tax liability more than four years after the date on
which the taxpayers filed their corresponding state tax return.
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B
Section 19057, subdivision (a) provides that “except as otherwise expressly
provided in this part,” defendant must mail any notice to the taxpayer of a
proposed deficiency assessment within the four-year period following the filing of
the state tax return. (Italics added.)4 Thus, by its express terms, section 19057
contemplates that in certain circumstances an alternate statute of limitations will
apply to defendant’s mailing of a proposed deficiency assessment. The provisions
that follow, sections 19059 and 19060, make it clear that special limitations

4
The parties do not agree which version of the four-year statute of
limitations applies in these circumstances. Plaintiffs apparently assert that the
operative provision is former section 18586, which was repealed effective January
1, 1994 and replaced with section 19057. (Stats. 1993, ch. 877, § 21, p. 4711.)
From 1983 through 1993 (with minor modifications of no significance here),
former section 18586, subdivision (a) provided: “Except in the case of a
fraudulent return and except as otherwise expressly provided in this part, every
notice of a proposed deficiency assessment shall be mailed to the taxpayer within
four years after the return was filed. No deficiency shall be assessed or collected
with respect to the year for which the return was filed unless the notice is mailed
within the four-year period or the period otherwise fixed.” (Stats. 1961, ch. 500,
§ 8, p. 1604, italics added.)

Defendant asserts on the other hand that the operative provision is section
19057 as enacted and amended in 1993 (Stats.1993, ch. 31, § 26, p. 215;
Stats.1993, ch. 877, § 27, p. 4716) and effective January 1, 1994, until its further
amendment in 1998. (Stats. 1998, ch. 322, § 48, eff. Aug. 20, 1998.) Prior to the
latter amendment, section 19057, subdivision (a) provided: “Except in the case of
a false or fraudulent return and except as otherwise expressly provided in this part,
every notice of a proposed deficiency assessment shall be mailed to the taxpayer
within four years after the return is filed. No deficiency shall be assessed or
collected with respect to the year for which the return was filed unless the notice is
mailed within the four-year period or the period otherwise provided.” (Italics
added.)

Because the pertinent provisions of former section 18586, subdivision (a),
are substantially similar to those of section 19057, subdivision (a), our conclusion
will not differ depending upon whether the former or the latter statute is deemed to
apply. As did the Court of Appeal, we shall apply section 19057 and refer to that
statute with the understanding we are referring to its former version.
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periods apply to defendant when the IRS changes a taxpayer’s federal tax
liability — whether or not the taxpayer reports the change to defendant.
Section 19059 sets forth the time period during which defendant may send
notice to a taxpayer of a proposed deficiency assessment in the event the taxpayer
timely reports a final federal determination of a change or correction. Prior to its
amendment in 1999, section 19059, subdivision (a) specified that if a taxpayer is
required by section 18622, subdivision (a), to report a change or correction by the
IRS and does report the change or correction within six months after the final
federal determination, “a notice of proposed deficiency assessment resulting from
those adjustments may be mailed to the taxpayer within two years from the date
when the notice is filed with [defendant] by the taxpayer, or within the periods
provided in Section 19057, 19058, or 19065, whichever period expires later.”
(Italics added.)
Section 19060 sets forth the time periods during which defendant may
notify the taxpayer of a proposed deficiency assessment in the event a taxpayer
required by section 18622 to report does not timely report, or fails to report, a
change or adjustment by the IRS. Prior to the amendment of section 19060 in
1999, subdivision (b) provided that if a taxpayer reports to defendant a change by
the IRS later than six months following the final federal determination of a change
as prescribed in section 18622, defendant may mail a notice of proposed
deficiency assessment “within four years from the date the taxpayer . . . notifies
[defendant] of [the federal] change.” Subdivision (a), of most relevance here,
specified that “if a taxpayer fails to report a [federal] change . . . a notice of
proposed deficiency assessment resulting from the adjustment may be mailed to
the taxpayer at any time . . . .” (Italics added.)5

5
The parties agree that the former version of section 19060 (added by
Stats.1993, ch. 31, § 26, p. 217), in effect from 1994 to 1999, is the operative
statute. Until its amendment (Stats. 1999, ch. 987, § 72, eff. Oct. 10, 1999),
(footnote continued on next page)
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As we shall explain, we agree with defendant that, in light of the
circumstances of the present case — involving taxpayers who failed entirely to
report a final federal determination that increased their federal tax liability and
consequently increased their state taxes payable — section 19060, subdivision (a)
applied, permitting defendant at any time to mail plaintiffs notice of the proposed
deficiency assessment based upon the additional state taxes payable for the 1983
tax year.
As we previously have stated, “ ‘[i]n construing statutes, we must
determine and effectuate legislative intent.’ [Citation.] ‘To ascertain intent, we
look first to the words of the statutes’ [citation], ‘giving them their usual and
ordinary meaning.’ [Citation.]” (Lennane v. Franchise Tax Bd., supra, 9 Cal.4th
263, 268.) It is evident that section 19057, subdivision (a), affording defendant
four years to mail the taxpayer notice of a proposed deficiency from the date the
taxpayer filed his or her return, is not intended to be the sole limitations period
applicable to defendant in performing that task, but instead applies “except as
otherwise expressly provided in this part.”6 The italicized phrase makes it

(footnote continued from previous page)
section 19060, former subdivision (a) provided, in relevant part: “If a taxpayer
fails to report a change or correction by the Commissioner of Internal Revenue
. . . or fails to file an amended return as required by Section 18622, a notice of
proposed deficiency assessment resulting from the adjustment may be mailed to
the taxpayer at any time after the change, correction, or amended return is reported
to or filed with the federal government.” (Italics added.) Subdivision (b)
provided: “If, after the six-month period required in Section 18622, a taxpayer
reports a change or correction by the Commissioner of Internal Revenue . . . or
files an amended return as required by Section 18622, a notice of proposed
deficiency assessment resulting from the adjustment may be mailed to the
taxpayer within four years from the date the taxpayer notifies [defendant FTB] of
that change or correction or files that return.” (Stats. 1993, ch. 31, § 26, p. 217.)
6
Plaintiffs acknowledge that section 19057 includes an exception to its own
applicability, specified for express provisions that otherwise are within the same
part of the Revenue and Taxation Code. Plaintiffs conclude, however, that in their
(footnote continued on next page)
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incumbent upon us to consider the circumstances under which the alternative
limitations statutes apply.
In addition, we are required to harmonize statutes by considering a
particular clause or section in “the context of the statutory scheme of which it is a
part.” (DuBois v. Workers’ Comp. Appeals Bd. (1993) 5 Cal.4th 382, 388.)
“[P]rovisions relating to the same subject must be harmonized to the extent
possible.” (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735.) In light of the
similarity of the phrases employed, the entities referred to, and the subjects of
sections 19057, 19059, and 19060, and other sections within that statutory
sequence (cf. §§ 19057-19065), it is evident that the phrase of exception provided
in section 19057 refers to the applicability of one of those provisions.7

(footnote continued from previous page)
case those provisions — sections 19059 and 19060 — cannot apply. Plaintiffs
observe that these two statutes prescribe alternative periods of limitation when the
taxpayer belatedly reports, or fails to report, the federal changes “as required by
Section 18622.” Plaintiffs assert they were not required by section 18622 to
report, because the increase in their state tax liability resulting from the federal
changes did not become payable due to the expiration of the four-year period of
limitations provided in section 19057; thus defendant was precluded from mailing
notice of a proposed deficiency assessment. Therefore, the statutory condition
precedent to the applicability of section 19059 or 19060 was not present.

In attempting to establish that defendant was foreclosed from noticing a
deficiency assessment after four years elapsed from the date the tax returns were
filed (§ 19057, subd. (a)), and thus that 18622, subdivision (a) did not apply to
them, plaintiffs rule out the possibility that other statutory periods of limitation
were applicable based upon the inapplicability of section 18622 ― a circumstance
that in turn was due to the expiration of the four-year period of limitations
(§ 19057, subd. (a)). Plaintiffs’ argument is circular or begs the question. Instead
of providing “reasons, or premises, in an attempt to prove its conclusion,” “the
supporting premises merely repeat or rephrase what is stated in the conclusion.”
(Engel, With Good Reason – An Introduction to Informal Fallacies (6th ed. 2000)
ch. 4, p. 162.)
7
In this court, plaintiffs assert for the first time that, to the extent the statutes
providing special limitations periods (§§ 19059 and 19060) and the reporting
(footnote continued on next page)
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It also is “ ‘well settled . . . that a general provision is controlled by one that
is special, the latter being treated as an exception to the former.’ ” (San Francisco
Taxpayers Assn. v. Board of Supervisors (1992) 2 Cal.4th 571, 577.) Section
19057, subdivision (a) generally is applicable in the routine case in which, for
example, a taxpayer files his or her federal and state income tax returns for a given
tax year and the IRS does not undertake a subsequent tax examination of the
federal tax return for that year. Sections 19059 and 19060 make it clear that
special limitations periods apply when the IRS has changed the taxpayer’s federal
tax liability — creating a two-year limitations period when the taxpayer reports the
changes within six months, establishing a four-year limitations period when the
taxpayer untimely reports the changes, and recognizing an absence of limitation
when the taxpayer entirely fails to report. Thus, those statutes, prescribing
alternative periods of limitations when the federal government does choose to
examine tax returns previously filed, create exceptions to the general statute that
reflect the open status of those tax returns.
Our view that, when changes to tax liability are effected by the IRS, the
general limitations period provided in section 19057 is replaced by a special
limitations period provided in section 19059 or 19060, is consistent with the
interpretation given these statutes by the SBE. As we previously have explained,

(footnote continued from previous page)
statute (§ 18622) would “revive” or “reopen” a limitations period after it is closed
(§ 19057), they are unconstitutional. Plaintiffs rely upon Chambers v. Gallagher
(1918) 177 Cal. 704, 708-709, holding unconstitutional a statute expressly
reopening a closed limitations period for the assessment of inheritance taxes. As
defendant points out, a court has no occasion to consider a contention (including a
constitutional challenge) in a suit for a tax refund, unless the contention previously
was raised in the administrative claim for a tax refund. (See, e.g., Barclays Bank
Internat. Ltd. v. Franchise Tax Bd. (1992) 10 Cal.App.4th 1742, 1749; Shiseido
Cosmetics (America) Ltd. v. Franchise Tax Bd. (1991) 235 Cal.App.3d 478, 487-
491.) In any event, our interpretation of the cited statutes is not premised upon the
reopening of a closed limitations period.
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although we have the ultimate responsibility of construing these statutes, in
general we accord significant weight and respect to a longstanding statutory
construction ― whether in the form of a policy or a rule ― by the agency charged
with enforcement of the statute. (Agnew v. State Bd. of Equalization, supra, 21
Cal.4th 310, 322; see In re Dannenberg (2005) 34 Cal.4th 1061, 1082; Yamaha
Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 12-14.) The
SBE has concluded that when the IRS has made changes to a taxpayer’s reported
gross income or deductions, the four-year limitations statute does not apply. (See,
e.g., Appeal of Eddlemon (Dec. 12, 1995) 95 SBE 015 [Cal.Tax Rptr. (CCH)
¶ 402-813, p. 28,407]; Appeal of Magidow (Nov. 17, 1982) 82 SBE 274 [Cal.Tax
Rptr. (CCH) ¶ 400-737, p. 23,129].) In the latter case, the SBE stated: “Section
18586 [the predecessor of section 19057] is a general statute of limitations and it
expressly provides for exceptions to the general rule. Either of two exceptions
applies when federal changes are made to a taxpayer’s gross income or
deductions, depending on whether or not the taxpayer reports the changes to the
Franchise Tax Board in a timely fashion as required by section 18451 [the
predecessor of section 18622] of the Revenue and Tax Code.” (Id. ¶ 400-737, at
p. 23,131.)
The SBE has explained that if the four-year limitations period were to
apply, defendant would be unable to employ the final federal adjustments as the
basis for its assessments whenever such adjustments are substantially delayed
because the taxpayers contested their federal assessment by pursuing
administrative review with the IRS or additional review in the federal court
system. (Appeal of Gebler (Aug. 18, 1980) 80 SBE 101 [Cal.Tax Rptr. (CCH)
¶ 206-465, p. 14,965-86].) It is unlikely the Legislature intended to afford such
preferential treatment to litigious taxpayers or to depend to such an extent upon
prompt action by the federal authorities. (Id. at p. 14,965-87.)
Moreover, under plaintiffs’ approach, any taxpayer who managed to
prolong an audit of his or her federal tax return for a particular year — and thus, to
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prolong the final federal determination of additional tax liability — four years or
more from the date on which he or she filed the state tax return for that year,
would avoid liability for additional state taxes otherwise payable as a result of the
federal changes. It is equally unlikely that the Legislature intended to reward a
taxpayer’s gamesmanship, delay, and avoidance of legal obligations, and in effect
to charge with payment of additional state taxes only those law-abiding taxpayers
who report federal audit changes.
In the present case, because plaintiffs’ 1983 federal tax return was corrected
by the IRS in a manner that increased their state tax liability for the corresponding
period, section 19057 did not apply.8 Because plaintiffs failed to report the

8
Pursuant to California Rules of Court, rule 29.1, plaintiffs have filed a
supplemental brief directing our attention to legislation that was proposed by
defendant (Assem. Bill No. 1630 (2005-2006 Reg. Sess.)) following the filing of
plaintiffs’ answer brief, purporting to clarify section 18622, subdivision (a) by
deleting the word “payable” and making other modifications to that section and
section 19057. Plaintiffs assert that the proposed modifications further support
their view that they were not required by section 18622 to report the tax changes
to defendant, because the four-year limitations period had expired. (Sen. Rules
Com., 3d reading analysis of Assem. Bill No. 1630 (2005-2006 Reg. Sess.) as
amended Mar. 29, 2005; Assem. Com. on Revenue and Taxation, 3d reading
analysis of Assem. Bill No. 1630 (2005-2006 Reg. Sess.) as amended Mar. 29,
2005.) Plaintiffs urge that the nature of the proposed modifications (representing
defendant’s attempt to “override” the decision of the Court of Appeal in this case)
together with the reason set forth in the Governor’s veto message (reflecting the
view that the bill retroactively would change tax policy and address an issue
pending before this court) establish that the Court of Appeal correctly interpreted
section 18622. (Governor’s veto message to Assem. on Assem. Bill No. 1630
(2005-2006 Reg. Sess.) July 26, 2005, Assem. Daily J. (Aug. 15, 2006) p. 2716.)
For the first time, plaintiffs also suggest that defendant’s interpretation would
render of no effect section 19063, subdivision (c) [extension by general partner of
federally registered partnership operates as extension by individual partners].
Defendant has filed a responsive supplemental brief observing, with respect to
plaintiffs’ argument based upon reasons given in the Governor’s eventual veto of
Assembly Bill No. 1630, that it is the legislative intent that is of paramount
importance in considering proposed legislation. Plaintiffs’ reply supplemental
brief asserts that defendant has taken inconsistent positions by advising plaintiffs
(footnote continued on next page)
16

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change to defendant, section 19060, subdivision (a) instead applied. As we
recognized earlier, plaintiffs’ assertion that section 18622, subdivision (a) did not
to apply to them because they did not suffer an “increase in state tax payable,”
triggering a duty to report the federal change, is premised upon the asserted
applicability of section 19057. Plaintiffs do not dispute that they received a final
determination of changes to their federal tax liability resulting in an increase in
their state tax liability for the same tax year. Because section 19057 did not
preclude defendant from notifying plaintiffs of a proposed state tax deficiency
assessment, plaintiffs were required by section 18622, subdivision (a) to report the
federal changes increasing their state tax payable.
Thus, defendant’s interpretation of section 18622, subdivision (a) prevails.
Plaintiffs’ failure to comply with their duty under that statute to report the federal
tax liability changes dictated the application of section 19060, subdivision (a),

(footnote continued from previous page)
in 1998 that the applicable statute of limitations had been “reopened” and then
subsequently asserting that the applicable period of limitations had not expired.
Plaintiffs also have disputed defendant’s interpretation of section 19063.

We have rejected the applicability of section 19057, thus rejecting the
foundation of the Court of Appeal’s (and plaintiffs’) construction of section
18622. The existence of the proposed legislation and argument regarding section
19063 does not alter our conclusion.

The parties also have filed a number of requests that we take judicial notice
of public documents that include the fiscal year 1999-2000 Operations Report of
defendant FTB providing statistical information with regard to tax support and
collection activities, the legislative history of Assembly Bill No. 1630 prior to its
consideration and veto by the Governor, and excerpts from legislative material
prepared by the Assembly Revenue and Taxation Committee when legislation was
under consideration to conform state tax law with federal tax law as revised in
1978. We take judicial notice of these documents pursuant to Evidence Code
sections 459, subdivision (a), and 452, subdivision (c), permitting judicial notice
to be taken of “[o]fficial acts of the legislative, executive or judicial departments
. . . of any state of the United States.” “Official acts include records, reports and
orders of administrative agencies.” (Rodas v. Spiegal (2001) 87 Cal.App.4th 513,
518.)
17

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pursuant to which defendant was authorized to mail notice of the proposed
deficiency assessment at any time. Defendant properly notified plaintiffs of the
proposed deficiency assessment following the final federal determinations of
changes to plaintiffs’ federal tax liability.
III
The judgment of the Court of Appeal is reversed and the case is remanded
for further proceedings consistent with this opinion.

GEORGE, C. J.
WE CONCUR:
KENNARD, J.
BAXTER, J.
WERDEGAR, J.
CHIN, J.
MORENO, J.
CORRIGAN, J.

18

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See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Ordlock v. Franchise Tax Board
__________________________________________________________________________________

Unpublished Opinion

Original Appeal
Original Proceeding
Review Granted XXX 120 Cal.App.4th 1366
Rehearing Granted

__________________________________________________________________________________

Opinion No.

S127649
Date Filed: June 8, 2006
__________________________________________________________________________________

Court:

Superior
County: Los Angeles
Judge: Lee Smalley Edmon

__________________________________________________________________________________

Attorneys for Appellant:

Eric M. Zolt; Bingham McCutchen, Vreeland Law Firm, Clayton J. Vreeland and Donald J. Kula for
Plaintiffs and Appellants.

__________________________________________________________________________________

Attorneys for Respondent:

Bill Lockyer, Attorney General, David S. Chaney, Assistant Attorney General, W. Dean Freeman, Michael
R. Weiss, Gregory S. Price, William L. Carter and Amy J. Winn, Deputy Attorneys General, for Defendant
and Respondent.

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Counsel who argued in Supreme Court (not intended for publication with opinion):

Eric M. Zolt
UCLA School of Law
405 Hilgard Avenue
Los Angeles, CA 90095
(310) 206-0394

Amy J. Winn
Deputy Attorney General
1300 I Street, Suite 125
Sacramento, CA 94244-2550
(916) 322-1673

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Opinion Information

Date:	Docket Number:
Thu, 06/08/2006	S127649

Disposition
Jun 8 2006	Opinion: Reversed

Dockets
Sep 3 2004	Petition for review filed   In San Diego by counsel for Respondent {Franchise Tax Board}.
Sep 8 2004	Received Court of Appeal record   one doghouse
Sep 8 2004	Record requested
Sep 21 2004	Request for depublication (petition for review pending)   by appellant Franchise Tax Board
Sep 24 2004	Answer to petition for review filed   By counsel for appellants {Bayard M. Ordlock et al.,} / CRC 40(K).
Oct 1 2004	Reply to answer to petition filed   by resp
Oct 15 2004	Time extended to grant or deny review   to 12-2-04
Dec 1 2004	Petition for review granted (civil case)   Votes: George, C.J., Kennard, Baxter, Werdegar, Chin, Brown, and Moreno, JJ.
Dec 7 2004	Request for extension of time filed   by resp Franchise Tax Bd. to file the opening brief on the merits, to 3-1-05.
Dec 9 2004	Certification of interested entities or persons filed   by aplts (Ordlock)
Dec 15 2004	Extension of time granted   to 3-4-05 for respondent Franchise Tax Board to file the opening brief on the merits.
Mar 3 2005	Opening brief on the merits filed   by resp Franchise Tax Board
Mar 3 2005	Request for judicial notice filed (granted case)   by resp Franchise Tax Board
Apr 1 2005	Answer brief on the merits filed   counsel for appellants BAYARD M. ORDLOCK & LOIS S. ORDLOCK
Apr 12 2005	Filed:   appellants' response to respondent's application for extension of time to file reply brief on the merits. filed in L.A.
Apr 12 2005	Request for extension of time filed   by resp to file the reply brief on the merits, to 5-21. (filed in San Diego)
Apr 18 2005	Filed:   letter from A.G. (resp) re extension request
Apr 19 2005	Extension of time granted   to 5-21-05 for respondent to file the reply brief on the merits
May 20 2005	Reply brief filed (case fully briefed)   by resp Franchise Tax Board
Jan 5 2006	Received application to file Amicus Curiae Brief   Holthouse Carlin & Van Trigt in support of Appellants, Ordlock, et.al., Separate request for judicial notice.
Jan 12 2006	Application to file amicus curiae brief denied   as untimely. Application to appear as amicus curiae and request for judical notice of Holthouse Carlin & Van Trigt.
Jan 19 2006	Notice of substitution of counsel   Appellants Bayard M. Ordlock and Lois S. Ordlock Attorney Clayton J. Vreeland
Jan 20 2006	Supplemental brief filed   Bayard M. Ordlock, appellants Clayton J. Vreeland, counsel
Mar 8 2006	Case ordered on calendar   Tuesday, April 4, 2006, at 1:30 p.m., in Los Angeles
Mar 14 2006	Change of contact information filed for:   Attorney General for respondent Franchise Tax Board. Amy J. Winn in place of Gregory Sinclair Price
Mar 14 2006	Supplemental brief filed   Respondent, Franchise Tax Board Dep. AG, Amy J. Winn
Mar 14 2006	Request for judicial notice filed (granted case)   Respondent, Franchise Tax Board's Second Request. Deputy AG, Amy J. Winn.
Mar 15 2006	Received:   amended certificate of word count . Respondent, Franchise Tax Board's Supplemental Brief.
Mar 22 2006	Filed:   additional authorities of Respondent, Franchise Tax Board by Deputy Attorney General, Amy J. Winn.
Mar 23 2006	Filed:   supplemental brief of Appellants, Bayard Ordlock, et al., as additional authorities by counsel, Eric M. Zolt.
Mar 23 2006	Request for judicial notice filed (granted case)   Appellants, Bayard Ordlock, et al. , in support of supplemental brief by counsel, Eric M. Zolt.
Apr 4 2006	Cause argued and submitted
Jun 8 2006	Opinion filed: Judgment reversed   and remanded. Opinion by George, C. J. -----joined by Kennard, Baxter, Werdegar, Chin, Moreno & Corrigan, JJ.
Jun 26 2006	Rehearing petition filed   Appellants Bayard M. Ordlock, etal Attorney Clayton J. Vreeland, retained
Jul 10 2006	Time extended to consider modification or rehearing   to September 6, 2006.
Aug 16 2006	Rehearing denied
Aug 16 2006	Remittitur issued (civil case)
Aug 23 2006	Received:   receipt for remittitur CA 2/1.

Briefs
Mar 3 2005	Opening brief on the merits filed
Apr 1 2005	Answer brief on the merits filed
May 20 2005	Reply brief filed (case fully briefed)

If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website