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Filed 9/14/23 Steuer v. Cal. Franchise Tax Board CA1/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for 

publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or 

ordered published for purposes of rule 8.1115. 

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

ALAN STEUER et al.,

Plaintiffs and Appellants,

v.

CALIFORNIA FRANCHISE TAX 

BOARD,

Defendant and Respondent.

 A165659

 (City & County of San Francisco

 Super. Ct. No. CGC-18-571122)

The trustees of multiple trusts filed actions against the California 

Franchise Tax Board (FTB) for refund of taxes allegedly overpaid. As to one 

of the trusts, the Paula Trust, the action proceeded on a single theory, which 

was ultimately rejected, and that action was dismissed with prejudice. The 

trustees then sought on behalf of the other trusts to press their claims for a 

refund on other grounds. The trial court ruled that claim preclusion barred 

the trustees from litigating these claims and granted summary judgment in 

favor of the FTB. The trustees appeal, and we reverse. 

FACTUAL AND PROCEDURAL BACKGROUND

I. The Trusts and the Businesses

Plaintiffs are Alan Steuer and Stafford Smiley (the Trustees) in their 

capacity as co-trustees of 157 different trusts (the Trusts). The Trustees also 
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serve as trustees of the Paula Trust, which is not a party to this action (and is 

excluded from “the Trusts”). At all relevant times, Steuer was a resident of 

California, and Smiley was a resident of Maryland. 

The Trusts and the Paula Trust were established to benefit the family 

of Raymond J. Syufy. They held limited-partnership interests in Syufy

Enterprises, L.P. (Syufy Enterprises) which in turn was managed by its 

general partner, Syufy Properties, Inc. (Syufy Properties). The Trusts and 

the Paula Trust were shareholders in Syufy Properties. Syufy Enterprises 

wholly owned Century Theatres, Inc. (Century). It also owned theater 

properties at which Century operated movie theaters and provided business 

services to Century. These three entities—Syufy Enterprises, Syufy 

Properties, and Century—jointly operated a movie-theater business in 

multiple states, including California. 

II. Sale of Century, Tax Returns, and Refund Claims

During its 2007 tax year, Syufy Enterprises sold Century, and it 

distributed its 2007 income to its partners—the Trusts, the Paula Trust, and 

Syufy Properties. Syufy Properties in turn provided its shareholders—the 

Trusts and the Paula Trust—their shares of its income from Syufy 

Enterprises. 

The tax returns of Syufy Properties and Century for the period in 

question reported an apportionment between income from California sources 

and non-California sources. Syufy Enterprises’ original partnership tax 

return for the period in question, however, did not allocate income between 

California and non-California sources. Similarly, the original 2007 California 

tax returns filed by the Trustees on behalf of the Trusts and the Paula Trust 

reported all of their income from Syufy Enterprises and Syufy Properties as 

taxable California-source income. 
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The Trustees later caused the Trusts and the Paula Trust to file 

amended returns for the 2007 tax year, seeking refunds of amounts they 

contended were not solely California-source income. Specifically, the claims 

for refund recited: “The stock gain [from the sale of Century] was incorrectly 

reported by the taxpayer as solely California source income on the taxpayer’s 

original 2007 return. [¶] Subsequent to the filing of the 2007 return, the 

taxpayer determined that because [one of] its trustees was a California 

resident and one was a non-California resident, pursuant to the Revenue and 

Tax Code . . . it was required to apportion the stock gain as California source 

and non-California source income. Accordingly, the taxpayer hereby claims a 

refund in the amount set for[th] below on the ground the stock gain should be 

apportioned to California according to the number of trustees resident in 

California and on the ground such apportionment is consistent with and 

required by [the applicable law].” (Block capitalization omitted.) The FTB 

did not act on the refund claims. 

III. The Paula Trust Administrative Appeal and Lawsuit

In September 2013, deeming the claim denied, the trustees of the Paula 

Trust filed an appeal with the Board of Equalization as a “test case” to 

resolve the legal issue of whether the trust’s income is taxed solely on the 

basis of the trustees’ residency. 

The FTB sought a deferral of its time to file its brief in the appeal on 

the ground it was conducting an audit of the 2007 amended returns for the 

Paula Trust, several related trusts, and Syufy Enterprises with the intention 

to determine whether the sale of Century generated California-source income 

and, if so, the amount of that income. If the FTB determined the sale did not 

generate California-source income, the FTB argued, the Paula Trust’s appeal 

might not be necessary. In another submission, the FTB argued that the 
4

administrative appeal did not raise only the legal issue regarding the effect of 

the trustees’ state of residence, but rather required resolution of factual 

issues regarding the source of the income, matters the FTB was considering 

in its audit. And, the FTB explained, the issues encompassed in the ongoing 

audit “would allow [the FTB] to . . . arrive at a factual conclusion regarding 

the source of income.” 

Opposing the request for a deferral, counsel for the Paula Trust wrote 

to the Board of Equalization explaining it wished “this single appeal—Appeal 

of Paula Trust” to proceed to resolve the discrete legal question of whether 

the residence of the fiduciaries affected the source of the trust’s income. It 

agreed to abide by its original return (which attributed 100 percent of its 

income to California) and waived the FTB’s offer that after audit it might 

conclude that not all of the trust’s income would be sourced to California. 

The matter proceeded, and the Board of Equalization ultimately ruled 

against the Paula Trust. 

The Paula Trust filed a complaint for refund of taxes in the trial court 

December 2016 on the ground the trust was required to apportion only half of 

its income to California because only one of its two trustees was a California 

resident. (The Paula Trust action.)

The Paula Trust moved for summary judgment or summary 

adjudication, and the parties entered into a stipulation of facts deemed 

conceded for purposes of the motion, including that “[a]ll of the income from 

which a refund is sought . . . on behalf of the Paula Trust and the named 

trustees is deemed to be California source income if the provisions at Rev. & 

Tax. Code[,] § 17951 et seq. apply to the Paula Trust,” and that the Paula 

Trust and the Trustees “do not claim a refund of taxes in this action on the 

basis that the Paula Trust had income from non-California sources.” The 
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trial court granted summary judgment in favor of the Paula Trust, and the 

FTB appealed. (Steuer v. Franchise Tax Bd. (2020) 51 Cal.App.5th 417 

(Steuer I).) 

As pertinent here, the question in Steuer I was whether “the Revenue 

and Taxation Code imposes taxes on the entire amount of trust income 

derived from California sources, regardless of the residency of the trust’s 

fiduciaries.” (Steuer I, supra, 51 Cal.App.5th at p. 422.) A different panel of 

this court answered that question in the affirmative, concluding that all of a 

trust’s “California-source income” is taxable, and only income derived outside 

of California is apportioned according to the number of resident beneficiaries.

(Id. at pp. 422, 426–431 434.) On remand, the Paula Trust action was 

dismissed with prejudice. 

IV. The Present Action

Meanwhile, the FTB’s audits of the Trusts’ refund claims resulted in a 

recommendation to deny the claims. The Trustees appealed to the Board of 

Equalization in January 2014, and the matter was deferred. The parties 

agree that in November 2018, on plaintiffs’ request, the Trusts’ 

administrative appeals were dismissed so the Trusts could seek relief in 

court. 

The Trustees filed this action on behalf of the Trusts, seeking a refund 

of taxes, on November 6, 2018, and soon thereafter amended the complaint. 

Originally, they alleged that only half of the Trusts’ income was taxable

under California law because only one of the two trustees was a resident of 

California, and that requiring them to pay tax on California-source income 

earned by a nonresident was unconstitutional. The first amended complaint

also alleged that the Trusts’ income derived principally from the sale of 

intangible property (the sale of stock) that did not have its situs in California, 
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and as a result the income was non-California-source income and not fully 

taxable. (Rev. & Tax Code, § 17952.)1

The FTB answered the first amended complaint and moved for a stay of 

the action pending resolution of the Paula Trust action. It argued that a 

determination of the legal issues in the Paula Trust case would affect the 

parties’ discovery in the current case, which would include an inquiry into the 

source of the income and the corporate structure of each of the relevant 

entities. In opposition, the Trusts argued no stay should be granted, and that 

at a minimum they should be permitted to litigate the question of whether 

the income constitutes non-California-source income that was not fully 

taxable. In its reply, the FTB reiterated that “[whether] or not income is 

derived from a California source is a factual inquiry, and, unlike in the Paula 

Trust Action, where the plaintiffs did not contest the source of Paula Trust’s 

income, here extensive discovery will be required into the source of each of 

the 157 different trusts’ income.” And, the FTB went on, “whether or not the 

source of income is a relevant inquiry is dependent on the final legal 

determination as to whether trusts may be taxed on California-source 

income. This extensive discovery could therefore become moot if the Court of 

Appeal were to uphold the trial court’s determination that sourcing rules do 

not apply to trust income.” The trial court granted the stay pending the 

appellate court’s decision (and any action by the Supreme Court) in the Paula 

Trust action on April 9, 2019. 

After the appellate decision in the Paula Trust action (Steuer I) was 

final, plaintiffs filed a second amended complaint. That complaint was based 

on three theories: that a portion of the income from the sale of stock and 

1 All undesignated statutory references are to the Revenue and 

Taxation Code.
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other intangible property does not derive from sources within California 

because that property did not have a California business situs during the 

2007 tax year and one of the trustees was not a California resident (citing 

§ 17952); alternatively, that Syufy Enterprises and Century engaged in a 

unitary business within and outside of California and a portion of the income 

in dispute is therefore not California taxable income (citing Code of Reg., Tit.

18, § 17951-4); and finally, that if the FTB treats all of the Trusts’ income as 

California taxable income, it violates the Due Process Clauses of the state 

and federal constitutions and the Commerce Clause of the federal 

constitution. Plaintiffs later indicated they would dismiss the first cause of 

action based on section 17952. 

In September 2021, while this litigation was pending, Syufy 

Enterprises filed an amended return for the 2007 tax year, reflecting an 

apportionment of Syufy Enterprises’, Syufy Properties’, and Century’s 

property, payroll and sales, with 66.956 percent within California and 33.044 

percent outside California. 

The FTB moved for summary judgment on January 5, 2022 on three 

grounds: plaintiffs failed to exhaust their administrative remedies; based on 

the Paula Trust action, claim preclusion barred plaintiffs from arguing the 

Trusts’ 2007 income was not California-source income; and on the merits the 

Trusts’ 2007 income was taxable California-source income. The trial court 

concluded claim preclusion prevented plaintiffs from maintaining their 

claims in this action, and granted summary judgment without reaching the

other grounds. Plaintiffs appealed the ensuing judgment. 
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DISCUSSION

I. Standard of Review

Summary judgment should be granted if there is no triable issue of 

material fact and the moving party is entitled to judgment as a matter of law. 

(Huerta v. City of Santa Ana (2019) 39 Cal.App.5th 41, 46 (Huerta).) A 

genuine issue of material fact exists if the evidence would allow a reasonable 

person to find a material fact in favor of the opposing party under the 

applicable standard of proof. (Id. at p. 47.) 

On appeal, we review the trial court’s ruling on the motion for 

summary judgment de novo, considering all the evidence in the moving and 

opposition papers except that to which objections were sustained. (Johnson 

v. City of Loma Linda (2000) 24 Cal.4th 61, 65–66; Steuer I, supra, 51 

Cal.App.5th at p. 423.) We are not bound by the trial court’s reasons for 

granting summary judgment; rather, we affirm if the judgment is correct on 

any ground asserted in the motion. (Huerta, supra, 39 Cal.App.5th at p. 47.)

Whether claim preclusion applies in a particular case is a question of 

law that we review de novo. (Cal Sierra Development, Inc. v. George Reed,

Inc. (2017) 14 Cal.App.5th 663, 673 (Cal Sierra); City of Oakland v. Oakland 

Police & Fire Retirement System (2014) 224 Cal.App.4th 210, 228.) 

II. Taxation of Trusts

A trust in California is taxed in the same manner as an individual. 

(Steuer, supra, 51 Cal.App.5th at p. 425; § 17041, subd. (e).) Residents are 

taxed on all of their income, regardless of its source. (Steuer, at p. 424; 

§ 17041, subd. (a)(1).) Nonresidents are taxed on income from sources within 

California only. (Steuer, at p. 424; § 17041, subd. (i)(1)(B).) 

When the beneficiaries of a trust have only a contingent interest, the 

trust is treated as a resident of the state in which the fiduciary resides. 
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(Steuer, supra, 51 Cal.App.5th at p. 426; 17742, subd. (a).) And when there is 

more than one fiduciary, the trust’s income is apportioned according to the 

number of fiduciaries who reside in California. (§ 17743.) Under these rules, 

this division held in Steuer, “a trust is taxed on all California-source income, 

regardless of whether the fiduciary is a nonresident or not. Then, nonCalifornia-source income is apportioned between California and nonCalifornia fiduciaries.” (Steuer, at p. 427.)

III. Claim Preclusion

Claim preclusion, or res judicata, “prevents relitigation of the same 

cause of action in a second suit between the same parties or parties in privity 

with them. (Mycogen Corp. v. Monsanto Co. (2002) 28 Cal.4th 888, 896; DKN 

Holdings LLC v. Faerber (2015) 61 Cal.4th 813, 824 (DKN Holdings).) Claim 

preclusion applies only when the second action involves the same cause of 

action and is between the same parties or their privies, and there has been a 

final judgment on the merits in the first action. (Grande v. Eisenhower 

Medical Center (2022) 13 Cal.5th 313, 323.) Under this rule, “all claims 

based on the same cause of action must be decided in a single suit; if not 

brought initially, they may not be raised at a later date. ‘ “Res judicata 

precludes piecemeal litigation by splitting a single cause of action or 

relitigation of the same cause of action on a different legal theory or for 

different relief.” ’ ” (Mycogen Corp., at pp. 896–897.) 

In this context, privity is a requirement of due process, under which the 

losing party and the nonparty must have had “ ‘an identity or community of 

interest,’ with ‘adequate representation’ of that interest in the first suit, and 

circumstances such that the nonparty ‘should reasonably have expected to be 

bound’ by the first suit.” (DKN Holdings, supra, 61 Cal.4th at p. 826; see Cal 

Sierra, supra, 14 Cal.App.5th at p. 673.) This inquiry requires a “ ‘close 
10

examination of the circumstances of each case.’ ” (Victa v. Merle Norman 

Cosmetics, Inc. (1993) 19 Cal.App.4th 454, 464.) The operative question is 

not the relationship between the persons or entities, but rather “a person’s 

relationship to the subject matter of the litigation.” (Cal Sierra, supra, 14 

Cal.App.5th at p. 674.) 

The trial court found this standard was met here. It reasoned that the 

claims for refund asserted two theories: one that not all the income reported 

on the 2007 trust tax returns was from a California source (the “ ‘source 

theory’ ”), and one that the income should be taxed according to the residency 

of the trustees (the “ ‘residency theory’ ”). Plaintiffs chose to litigate the 

Paula Trust’s claim on only the residency theory; they were unsuccessful and 

dismissed the claim with prejudice. The court concluded that the remaining 

Trusts’ claims involved the same causes of action as the Paula Trust action, 

in that plaintiffs sought recovery in the form of a personal income tax refund. 

Although their claims posited two theories of recovery, they suffered only a 

single injury, giving rise to only one claim for relief. And, the court 

concluded, the two actions involved the same parties, the Trustees; the 

Trusts and the Paula Trust were privies; and there was a final judgment on 

the merits in the Paula Trust action. 

We disagree that the Trusts are precluded from asserting their claims 

based on the source theory. The circumstances of this case show clearly that 

the plaintiffs in the Paula Trust action did not represent the Trusts’ interest 

in pursuing their claims in full. Instead, during the administrative 

proceedings, the Paula Trust sought to proceed separately to address a 

“discrete legal question” related to the residence of the Trustees, and it 

agreed to waive any claim that not all of the income at issue had a California 

source. And during the litigation, the Paula Trust plaintiffs conceded only for 
11

purposes of their motion for summary judgment or adjudication that the 

income for which a refund was sought was California-source income. 

Perhaps most significant, while the appeal in the Paula Trust action 

was pending—that is, before the matter was final—the FTB sought and 

obtained a stay of proceedings in the current action on the ground that this 

case involved other issues. The stated basis for the FTB’s request for a stay 

was that, unlike the plaintiffs in the Paula Trust action, the Trusts in this 

action contest the source of their income, and extensive discovery into this 

question would be necessary unless the Court of Appeal’s decision in the 

Paula Trust action caused it to become moot. Having successfully prevented 

the Trusts from litigating the sourcing issue on this ground before the Paula 

Trust action was final, the FTB may not credibly claim that the Trusts 

should reasonably have expected those very claims to be precluded by a final

judgment in that action. 

Because we reach this conclusion, we need not consider whether in 

other circumstances the Trusts might have been bound by the result in the 

Paula Trust action.

IV. Exhaustion of Administrative Remedies

As an alternate ground for summary judgment, the FTB contends the 

Trusts did not exhaust their administrative remedies by sufficiently raising 

the source issue in their refund claims. That is because, they argue, the 

refund claims did not recite that the Trusts contended the income at issue did 

not derive entirely from California sources. The trial court at least implicitly 

rejected this ground for summary judgment, explaining in its ruling that each 

refund claim asserted two theories, one of them that not all the income the 

Trusts reported was from a California source. 
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As a general rule, a taxpayer seeking a refund of overpaid taxes must 

exhaust administrative remedies before bringing an action in court. 

(Steinhart v. County of Los Angeles (2010) 47 Cal.4th 1298, 1308; J.H. 

McKnight Ranch, Inc. v. Franchise Tax Bd. (2003) 110 Cal.App.4th 978, 986 

(J.H. McKnight); § 19382.) A claim for a refund must set forth the grounds 

on which the claim is founded. (Preston v. State Bd. of Equalization (2001) 25 

Cal.4th 197, 206 (Preston); § 19322.) A trial court may consider only grounds 

set forth in the administrative claim. (Preston, at p. 206; Atari, Inc. v. State 

Bd. of Equalization (1985) 170 Cal.App.3d 665, 672–673; § 19382.)

The purpose of this rule is to ensure the FTB has sufficient notice of the 

claim and its basis, and an opportunity to correct any mistakes, thus 

conserving judicial resources. (Preston, supra, 25 Cal.4th at p. 206.) But the 

rule is not applied woodenly. “Where the contention is intertwined with 

contentions expressly raised in the refund claim, courts may consider that 

contention even though the claim did not explicitly raise it.” (Preston, at 

p. 206.) No particular form of notice is required; moreover, “[i]f the [FTB] has 

notice of the taxpayer’s argument from whatever source during the course of 

resolving the claim for refund, it has the opportunity to reevaluate its 

position, reach the correct result, and obviate the need for a subsequent 

lawsuit.” (J.H. McKnight, supra, 110 Cal.App.4th at pp. 986–987.) Thus, the 

requirement of administrative exhaustion does not force us to “ignore actual 

notice the [FTB] may have had from sources other than the four corners of

the initial claim.” (Id. at p. 987; accord, Franchise Tax Bd. Limited Liability 

Corp. Tax Refund Cases (2018) 25 Cal.App.5th 369, 386; see also Wallace 

Berrie & Co. v. State Bd. of Equalization (1985) 40 Cal.3d 60, 66, fn. 2 

[exhaustion challenge rejected when issue was implicit in claim and Board’s 

trial stance showed it was aware of issue].) We construe a tax refund claim 
13

liberally in favor of the applicant. (J.H. McKnight, at p. 988.) Whether the 

FTB had actual notice of the basis for a claim is a question of fact. (See id. at 

p. 990.) 

Under these standards, the FTB has not met its burden to show there 

is no triable issue as to whether plaintiffs exhausted their administrative 

remedies. First, the refund claims recited that the stock gain at issue here 

“was incorrectly reported by the taxpayer as solely California source income” 

on the original 2007 return. Although the claims went on to discuss at 

greater length the Trusts’ theory that taxation should be based on the 

Trustees’ state of residency, they may plausibly be read to include a challenge 

to the source of the income, unrelated to residency. Further evidence that the 

FTB knew during the administrative proceedings that the Trusts’ refund 

claims implicated the source issue is found in their request for a deferral of 

the Paula Trust appeal to the State Board of Equalization: the FTB stated

that it was conducting audits and seeking to determine whether the sale of 

Century generated California-source income and, if so, the amount of that 

income, and argued that the appeal included factual questions about the 

source of the income. Indeed, the FTB itself told the trial court when seeking 

a stay of this action that that this case—unlike the Paula Trust action—

raises the question of the source of the Trusts’ income. 

In a footnote, the FTB points out that the claims sought a refund only 

of taxes on gains from the sale of Century stock, but the second amended 

complaint in this action alleges that Syufy Enterprises is also entitled to a 

refund for taxes on “other income from intangible property, including gains 

from the sale of stock and interest and dividend income.” These additional 

amounts, the FTB informs us in another footnote, comprise a very small 

portion of the Trusts’ 2007 income. Nevertheless, the FTB contends, having 
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failed to seek these apparently insignificant amounts in their refund claim, 

the Trusts cannot seek them in this action. We need not consider points 

raised only in a footnote. (Evans v. Centerstone Development Co. (2005) 134 

Cal.App.4th 151, 160.) In any case, nothing we say bars the FTB from 

arguing this point in the trial court. We hold simply that summary judgment 

based on exhaustion of administrative remedies is unwarranted.

V. California-Source Income

We thus proceed to the third ground for the motion for summary 

judgment: that the undisputed facts show, as a matter of law, that the 

Trusts’ 2007 income was taxable California-source income. 

There seems to be no dispute about many of the legal principles 

governing the taxability of the Trusts’ income. The parties agree that Syufy 

Enterprises, Syufy Properties, and Century comprise a “unitary business” for 

purposes of the tax laws. Unitary businesses that operate in California are 

subject to the Uniform Division of Income for Tax Purposes Act (§ 25120; 

Uniform Act). (J.P. Morgan Trust Co. of Delaware v. Franchise Tax Bd.

(2022) 79 Cal.App.5th 245, 263.) Under the Uniform Act, income “is divided

into two categories based on the corporation’s activities: business income, 

which is apportioned to each state via a formula, and nonbusiness income, 

which is generally allocated directly to the taxpayers’ commercial domicile.” 

(Ibid.; §§ 25121, 25128, subd. (a).) Business income is “income arising from 

transactions and activity in the regular course of the taxpayer’s trade or 

business and includes income from tangible and intangible property if the 

acquisition, management, and disposition of the property constitute integral 

parts of the taxpayer’s regular trade or business operations.” (§ 25120, subd. 

(a).) All other income is nonbusiness income. (§ 25120, subd. (d).) The 
15

parties appear to agree that the income at issue here is business income and 

thus subject to allocation under the Uniform Act. 

Nor is there any dispute about the second legal principle here: that the 

gain realized by Syufy Enterprises when it sold Century should be passed 

through to the Trusts “ ‘in exactly the same form as received by the [entity].’ ” 

(J.P. Morgan, at p. 274, quoting Heller v. Franchise Tax Bd. (1994) 21 

Cal.App.4th 1730, 1736; see Valentino v. Franchise Tax Bd. (2001) 87 

Cal.App.4th 1284, 1291 (Valentino).) That is, if the income was Californiasourced when Syufy Enterprises received it, it remained California-sourced

when passed through to the trusts; and if part of the income was properly 

allocated to other states when Syufy Enterprises received it, it has the same 

characterization when the trusts obtained it.

The question at the heart of this dispute, then, is whether the gain all 

qualifies as California-source income, instead of being allocated among the 

various states in which Syufy Enterprises, Syufy Properties, and Century did

business. The FTB contends we should answer that question in the 

affirmative. Its argument is founded on Syufy Enterprises’ original tax 

return for the relevant time period, which did not apportion any of its income 

to other states. The FTB argues that this original return was “proper[]” and 

that the Trusts are bound by that tax return, which Syufy Enterprises did 

not seek to amend until 2021. But the foundation of FTB’s argument is not 

that the undisputed facts establish that all of Syufy Enterprises’ income was 

in fact derived solely from California sources; rather, in this court it contends 

it need not look beyond the four corners of Syufy Enterprises’ original tax 

return to ascertain the character of the Trusts’ pass-through income.

For this result, the FTB first argues that, “[Syufy ]Enterprises having 

properly reported its sale of Century on its original partnership return,” the 
16

FTB was not obliged to accept an amended return altering the tax 

consequences of the sale. The only authority it cites for this proposition is

Cameron v. Commissioner (1995) 105 T.C. 380 (Cameron). The petitioners 

there were shareholders in a company that, following the close of its taxable 

year ended October 31, 1988, elected to be taxed as an S corporation rather 

than a C corporation. (Cameron, at pp. 381–382; 26 U.S.C. § 1361 et seq.)2 

In a manner similar to the partnership at issue here, an S corporation’s 

shareholders pay taxes as if they had received or incurred income, losses, etc. 

directly from the same source as the corporation (26 U.S.C. § 1366, subd. (b); 

see id., § 702, subd. (b) [partnership].) Between November 1, 1988 and 

December 31, 1989, the corporation’s costs to complete its construction 

contracts exceeded the reasonable estimates it had used under the 

“percentage of completion” method when calculating earnings and profits for 

its last taxable year as a C corporation. (Cameron, at pp. 382–385; see 

Broadaway v. C.I.R. (8th Cir. 1997) 111 F.3d 593, 595 (Broadaway) 

[affirming Cameron].) Had it continued to be taxed as a C corporation, those 

additional costs could have been taken into account when computing the 

following year’s earnings and profits. (Cameron, at p. 385.)

The question in Cameron, as relevant here, was whether the company’s 

previous estimates of its earnings and profits, based in part on expected costs 

to complete contracts, could be revised retroactively after the company

elected to be taxed as an S corporation. (Cameron, supra, 105 T.C. at p. 381.) 

The Tax Court answered that question in the negative. The statutory scheme 

provided that accumulated earnings and profits carried over from the period 

2 California generally applies federal law to tax treatment of both 

partnerships and corporations, and there is “substantial similarity between 

the federal partnership and S corporation provisions.” (Valentino, supra, 87 

Cal.App.4th at p. 1294; §§ 17851, 23800.) 
17

before a corporation elected to become an S corporation are generally not 

adjusted for later tax years when the election is in effect. (Id. at p. 384; 26 

U.S.C. § 1371, subd. (c)(1).) The Tax Court concluded the company was 

bound by its original estimates of its earning and profits, reasoning that this 

was the result of the election to use the provisions governing S corporations, 

“one of which is the freeze on earnings and profits.” (Cameron, at p. 385.) 

Moreover, “where a transaction was properly recorded on the original return 

and the original filing deadline has passed, the acceptance of an amended 

return that alters that tax consequences of the transaction is generally 

within the discretion of [the IRS].” (Id. at pp. 386–387.) 

Affirming Cameron, the Eighth Circuit Court of Appeals addressed the 

taxpayers’ argument that, as a matter of fairness, the company should be 

allowed to revise the profits and losses retroactively to reflect more 

accurately the higher costs actually incurred in completing the contracts. 

The court explained, “This argument is not unattractive, but . . . , cannot 

prevail. Once the Company elected to be taxed under Subchapter S, the 

taxpayers thereafter were prevented from taking advantage of the 

adjustments to earnings and profits normally available [to C corporations]

. . . . This no-retroactive-recomputation rule is plainly established in the 

applicable statutory provisions, and represents a burden the taxpayers 

necessarily assumed in order to gain the benefits of being taxed as an 

S corporation . . . .” (Broadaway, supra, 111 F.3d at p. 597.) 

Cameron does not establish that Syufy Enterprises’ original return, 

which did not apportion income, binds all the Trusts. Rather, it is expressly 

predicated on a statute that “freeze[s]” earnings and losses upon election to 

be taxed as an S corporation. (Cameron, supra, 105 T.C. at p. 385.) No such 

statute is at issue here. Also, in Cameron the shareholders were bound when 
18

the S corporation “properly” reported the transactions at issue on its original 

returns using the then-applicable accounting method. (Id. at pp. 386–387.)

Here, on the other hand, the Trusts’ position is that Syufy Enterprises’

original return, which did not allocate between sources within and outside 

California, did not properly report the sale of Century. Cameron is, 

accordingly, not dispositive, and the FTB fails to establish that the manner in 

which income was reported on a partnership’s tax return is not subject to 

amendment, regardless of its accuracy.

The FTB’s remaining contentions need not detain us long. It contends 

that because Syufy Properties and Century apportioned their business 

income, thus avoiding California tax on their non-California-source income, 

Syufy Enterprises cannot apply the same apportionment factors to its income. 

The Trusts respond that this proposition violates the rule requiring 

apportionment be done “of the unitary enterprise overall.” (Barclays Bank 

Internat., Ltd. v. Franchise Tax Bd. (1992) 2 Cal.4th 708, 715; Container 

Corp. v. Franchise Tax Bd. (1983) 463 U.S. 159, 170; Citicorp North America,

Inc. v. Franchise Tax Bd. (2000) 83 Cal.App.4th 1403, 1411; 18 Cal. Code 

Regs, 25106.5, subd. (c)(7)(B).) In any case, the FTB cites to no authority for 

its argument, and “[w]e need not consider an argument for which no 

authority is furnished.” (Dabney v. Dabney (2002) 104 Cal.App.4th 379, 384; 

see In re J.M. (2023) 89 Cal.App.5th 95, 114; Nickell v. Matlock (2012) 206 

Cal.App.4th 934, 947; Badie v. Bank of America (1998) 67 Cal.App.4th 779, 

784–785 (Badie).) We therefore need not resolve this point.

In a single paragraph, the FTB also contends that “unitary entities 

may combine their apportionment factors only as provided by statutes and 

Board regulations,” and may not do so in the circumstances of this case. But 

it provides no analysis that would allow us to conclude as a matter of law 
19

that gains from the sale of Century should not be allocated to non-California 

sources. We need not “examine undeveloped claims or . . . supply arguments 

for the litigants.” (Allen v. City of Sacramento (2015) 234 Cal.App.4th 41, 52; 

see Badie, supra, 67 Cal.App.4th at pp. 784–785 [point waived when not 

supported with reasoned argument].)

Finally, the FTB contends that Syufy Enterprises’ amended 2007 

returns, submitted in 2021 while this action was pending, are irrelevant 

because the Trusts did not amend their own returns to reflect the new 

allocation, and it is too late now for them to file for a refund based on the 

allocations reported in Syufy Enterprises’ amended return. (§ 19306, 

subd. (a) [refund claim must be filed within four years of filing return].) But 

the Trusts did file for a refund, the claim at issue in this case, and we have 

already concluded the source of their income is properly at issue in this 

action.

In sum, the FTB has not shown there is no triable issue of fact as to the 

source of the Trusts’ income. Summary judgment is therefore improper. 

Nothing we say, however, is intended to foreclose the FTB from arguing on 

remand that Syufy Enterprises’ original tax return was accurate or that the 

income in question was in fact derived solely from California sources.

DISPOSITION

The judgment is reversed. Appellants shall recover their costs on 

appeal.

TUCHER, P.J.

WE CONCUR:

PETROU, J.

RODRÍGUEZ, J.

Steuer et al v. California Franchise Tax Board (A165659)