Court Opinion

ID: 9839993
Source: CourtListenerOpinion
Date Created: 2023-09-14 21:03:51.751531+00
Date Added: 2024-06-11T09:42:53.736923
License: Public Domain

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                  NOT TO BE PUBLISHED IN OFFICIAL REPORTS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
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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,
                                                                        A165659
 v.
 CALIFORNIA FRANCHISE TAX                                               (City & County of San Francisco
 BOARD,                                                                 Super. Ct. No. CGC-18-571122)
           Defendant and Respondent.

         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

                                                               1
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.

                                         2
      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

                                       3
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

                                        4
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,

                                          5
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.

                                        6
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.

                                        7
                                 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.

                                         8
(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, non-
California-source income is apportioned between California and non-
California 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

                                        9
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

                                        10
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.

                                       11
      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

                                       12
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

                                       13
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

                                      14
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 California-
sourced 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

                                       15
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.)

                                       16
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

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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

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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)

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