Title: Ordlock v. Franchise Tax Bd.
Citation: N/A
Docket Number: S127649
State: California
Issuer: California Supreme Court
Date: June 8, 2006

1
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, 
 
 
2
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. 
 
 
3
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 
 
 
4
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 
 
 
5
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 
 
 
6
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.)   
 
 
7
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.   
 
 
8
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. 
 
 
9
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. 
 
 
10
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. 
 
 
11
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) 
 
 
12
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) 
 
 
13
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) 
 
 
14
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. 
 
 
15
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 
 
 
16
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) 
 
 
17
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.)   
 
 
18
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. 
 
 
 
 
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. 
 
 
 
 
 
 
 
 
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