Can a taxpayer rely on an older California FTB Legal Ruling without checking later statutes, regulations, administrative guidance, and court decisions?

Plain-English summary

California Legal Ruling 1992-1 warned taxpayers not to treat an old FTB Legal Ruling as permanently controlling.

FTB described published Legal Rulings as California's equivalent of IRS Revenue Rulings: they publicize the agency's official conclusion about how the law existing at the time applies to a particular set of facts.

Later statutes, regulations, administrative positions, or court decisions can supersede a ruling completely or modify only part of its reasoning or conclusion. Taxpayers must determine what remains valid before relying on it.

Consequences of relying on a superseded ruling

The ruling placed responsibility on the taxpayer to know about later legal changes and apply them to the taxpayer's own situation.

It stated that reliance on a Legal Ruling superseded by a change in law:

• did not constitute reasonable cause for waiving penalties; and
• did not count as substantial authority for purposes of the substantial-understatement penalty.

Three historical changes FTB highlighted

Federal conformity

FTB noted that 1983 legislation extensively changed California personal income tax by replacing many stand-alone California provisions with references to the Internal Revenue Code. A less comprehensive conformity process for bank and corporation tax began in 1987.

When a California provision had been replaced by federal conformity, the ruling directed taxpayers to federal authority interpreting the incorporated rule and to later California authority interpreting it after incorporation.

California method for nonresidents

The ruling said 1982 legislation changed how California computed tax for nonresidents. The new approach first calculated a tentative tax using resident rules, then applied the ratio of California-source income to total income.

FTB cautioned against older rulings using the prior method, which excluded non-California-source income entirely, including rulings applying that older method to basis or sourcing questions.

Compounding of interest

FTB said 1983 legislation changed deficiency and refund interest from separately computed simple interest to daily compounded interest on the combined daily balance of taxes, penalties, additions, and overpayments for the tax year.

What this means for you

Taxpayers and businesses

An official historical ruling can be useful evidence of FTB's interpretation when issued, but its date matters. Check whether the governing law, regulation, forms, or later guidance changed before using its answer.

Accountants and tax professionals

Review a ruling at the issue level. A later change may invalidate one holding while leaving unrelated analysis intact. Document the current statutory and administrative path rather than relying on the ruling's publication status alone.

Penalty analysis

Do not assume that following a superseded ruling automatically establishes reasonable cause or substantial authority. The ruling expressly rejected both propositions for a ruling displaced by legal change.

Common questions

Q: Were FTB Legal Rulings official agency conclusions?

A: Yes. The ruling described them as published official conclusions applying the law existing at issuance to specific facts.

Q: Could later law supersede only part of a ruling?

A: Yes. FTB said some rulings were completely superseded, while others retained portions of their reasoning or conclusions.

Q: Did publication guarantee penalty protection?

A: No. Reliance on a ruling superseded by a legal change did not establish reasonable cause and did not constitute substantial authority under the standards discussed.

Q: Why did FTB single out federal conformity?

A: California had replaced many stand-alone provisions with references to federal law, making older California-only interpretations potentially obsolete.

Q: How should an old ruling be used today?

A: Verify its current status against later statutes, regulations, administrative guidance, and court decisions before relying on any holding.

Citations and references

• FTB Notice 89-277 (May 10, 1989), Taxpayers' Bill of Rights, FTB Chief Counsel's Guidelines
• 1983 AB 36, Stats. 1983, ch. 488
• 1987 SB 572, Stats. 1987, ch. 1139
• 1982 SB 1326, Stats. 1982, ch. 327
• 1983 AB 223, Stats. 1983, ch. 323

Source

• Landing page: California FTB Legal Rulings
• Official HTML: Legal Ruling 1992-1

Original ruling text

Home

Legal ruling 1992-1

STATE OF CALIFORNIA
Franchise Tax Board - Legal Division
PO Box 1468
Rancho Cordova CA 95812-1468

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December 28, 1992

Control Number: 410:BRL:CL-92-880

Effect of Previously Issued Legal Rulings

As explained in the Taxpayers’ Bill of Rights, Franchise Tax Board Chief Counsel's Guidelines, FTB Notice 89-277, May 10, 1989, published Legal Rulings are California’s equivalent of IRS Revenue Rulings, and are issued to publicize the Franchise Tax Board’s official conclusion on how the law in existence at the time the ruling is issued is applied to a specific set of facts. Rulings may be superseded by subsequent changes in the law or by judicial decisions.

All published Franchise Tax Board positions must be read in light of subsequent statutory, regulatory, administrative and judicial decisions. In some cases, the holding of Legal Rulings may have been completely superseded. In others, a particular statutory change or judicial interpretation may have modified the holding of ruling in some particular, but the balance of the reasoning or conclusion remains in effect.

It is the taxpayer’s responsibility to be aware of changes in the law, and how such changes apply to the taxpayer’s individual situation. Reliance on a Legal Ruling which has been superseded by a change in the law will not constitute reasonable cause for waiver of penalties, nor are such rulings "substantial authority" for purposes of the substantial understatement penalty.

Taxpayers should be particularly aware of the following issues:

Federal Conformity: In 1983, AB 36 (Stats. 1983, Ch. 488) made extensive changes to the Personal Income Tax Law, generally repealing many California’s "stand alone" statutes and conforming California law by reference to the Internal Revenue Code. A similar, although less comprehensive, conformity of the Bank and Corporation Tax Law commenced in 1987. (SB 572; Stats. 1987, Ch. 1139). Where California code sections have been repealed and replaced by references to Internal Revenue Code sections, taxpayers should look to federal authority for the proper interpretation of those statutes and to California authority construing the statute after the federal incorporation.

California Method: In 1982, SB 1326 (Stats. 1982, Ch. 327) changed the method of computing tax on the income of nonresidents. This method first computes a tentative tax under the same rules applicable to residents, then applies a ratio of California source income to total income to determine how much of the tentative tax is properly attributable to California sources. Taxpayers should be especially cautious of rulings issued under the old method (which excluded income entirely if it was not from California sources) and those which apply the old method in computing basis, source of income, etc.

Compounding of Interest: AB 223 (Stats.1983, Ch. 323) changed California’s method of computing interest on deficiencies and refunds from simple interest, computed separately on each adjustment, to the federal method of compounded daily interest, charged or paid on the combined daily balance of taxes, assessed penalties, additions to tax, and overpayments applicable to a particular taxable or income year.

Drafting Information

The principal author of this ruling is Bruce R. Langston of the Franchise Tax Board Legal Division. For further information regarding this notice, contact Mr. Langston at the Franchise Tax Board Legal Division, P.O. Box 1468, Sacramento, CA 95812-1468.

NOTE: ((---)) = Indicates obsolete information.

Last updated: 09/24/2025