California Court of Appeals, First District, Second Division
November 20, 2013
FRANCHISE TAX BOARD, Petitioner,
THE SUPERIOR COURT OF SAN FRANCISCO COUNTY, Respondent; QUELLOS GROUP, LLC, Real Party in Interest FRANCHISE TAX BOARD, Petitioner, THE SUPERIOR COURT OF SAN FRANCISCO COUNTY, Respondent; QUELLOS FINANCIAL ADVISORS, LLC, Real Party in Interest.
Superior Court of the City and County of San Francisco Nos. CG-C010-501299, CGC-09-487540 Honorable Richard Kramer.
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
Kamala D. Harris, Attorney General, Paul D. Gifford, Assistant Attorney General, Joyce E. Hee and Anne Michelle Burr, Deputy Attorneys General, for Petitioner.
No appearance for Respondent.
Steptoe & Johnson, Matthew D. Lemer and Amanda Pedvin Varma for Real Parties in Interest.
The Franchise Tax Board (FTB or the Board) sought penalties against real parties in interest Quellos Group, LLC and Quellos Financial Advisors, LLC (collectively Quellos) for allegedly promoting an abusive tax shelter to a California taxpayer in 2001. Respondent Superior Court of San Francisco ruled for Quellos, and the Board seeks review of a single issue: whether a 2003 amendment to Revenue and Taxation Code section 19177 increasing the penalty for promoting an abusive tax shelter from $1, 000 to 50 percent of the gross income received can be retroactively applied. The financial consequences of the answer are enormous: if the statute is not retroactive, the two promoters here have to write a check for only $2, 000, but if the statute is retroactive, the promoters must write a check for almost $27 million, plus a dozen years of interest.
Respondent court concluded that the statute cannot be retroactively applied, and the Board must be satisfied with the $2, 000. We reach the same conclusion, relying in large part on an uncodified provision enacted with the 2003 amendments to section 19177, in which the Legislature directed that “this act shall apply with respect to any penalty assessed on or after January 1, 2004, on any return for which the statute of limitations on assessment has not expired. All other provisions of this act shall apply on or after January 1, 2004.” (Italics added.) The FTB acknowledges that the penalty imposed by any version of section 19177 is not a penalty “assessed... on [a] return.” And whet we conclude is dispositive is other language in the uncodified provision, which establishes that the Legislature did address the issue of retroactive sanctions in a variety of contexts, including for promoters, but only authorized retroactive application of a penalty in the case of a specific type of inaction by them. Because the issue of retroactive application was expressly addressed by the Legislature, we cannot expand that application as the Board requests, and we thus deny its petitions for mandate.
The Setting And The Statutes
A knowledgeable observer of abusive tax shelters, recognizing that they represent one of the most fertile fields for financially-driven creativity, likens them to pornography in that they “may be easier to recognize than define.” (Bankman, The New Market in Corporate Tax Shelters (June 21, 1999) 83 Tax Notes 1775, 1777.) They are also very much a moving target in that one of their typical characteristics is that “the shelter is likely to be shut down by
legislative or administrative change soon after it is detected.” (Id. at p. 1777; see id. at p. 1781.) Like performance-enhancing drugs in sport, it appears impossible for taxing authorities to anticipate what the latest generations of shelters will look like until they actually appear.
California’s primary weapon in the fight against bogus shelters has always been section 19177. The state was following the lead of the federal government, which first legislated on the subject in 1982. When originally enacted, section 6700 of the Internal Revenue Code (26 U.S.C. § 6700) directed that promoters of abusive tax shelters “shall pay a penalty equal to the greater of $1, 000 or 10 percent of the gross income derived or to be derived by such person from such activity.” (Pub.L. No. 97-248, § 320(a) (Sept. 3, 1982) 96 Stat. 611.) In 1993, California followed with the first version of section 19177, which provided simply: “A penalty shall be imposed for promoting abusive tax shelters. The penalty shall be determined in accordance with the provisions of Section 6700 of the Internal Revenue Code.” (Stats. 1993, ch. 31, §26, p. 152.)
A decade later, California resolved to address the issue in a more systematic fashion. In 2003, as part of a multi-faceted approach to halting (or at
least slowing) the hemorrhaging of state revenues caused by abusive tax shelters (see fn. 10, post), section 19177 was amended to read:
“(a) A penalty shall be imposed for promoting abusive tax shelters. The penalty shall be determined in accordance with the provisions of Section 6700 of the Internal Revenue Code, except as otherwise provided.
“(b) Notwithstanding Section 6700(a) of the Internal Revenue Code, if an activity with respect to which a penalty imposed under Section 6700(a) of the Internal Revenue Code involves a statement described in Section 6700(a)(2)(A) of the Internal Revenue
Code,  the amount of the penalty
imposed under subdivision (a) shall be equal to 50 percent of the gross income derived (or to be derived) from that activity by the person on which the penalty is imposed.” (Stats. 2003, ch. 654, § 9, p. 5023; Stats. 2003, ch. 656, §9, p. 5051.) An uncodified section in the 2003 enactments provided in pertinent part: “(a) Unless otherwise provided, this act shall apply with respect to any penalty assessed on or after January 1, 2004, on any return for which the statute of limitations on assessment has not expired. All other provisions of this act shall apply on and after January 1, 2004.” (Stats. 2003, ch. 654, § 15, p. 5037; Stats. 2003, ch. 656, § 15, subd. (a), p. 5064.) We shall refer to this language as “section 15(a)” and the entirety of the uncodified provision as “section 15.”
The Proceedings Below
Pursuant to this language, and the 2003 version of section 19177, the FTB assessed Quellos $26, 954, 965 in penalties, this being 50 percent of the $53, 909, 930 Quellos allegedly received for promoting an abusive tax shelter to a California taxpayer in 2001. In accordance with section 19180, Quellos paid 15 percent of the assessment ($4, 043, 244.25) to the FTB and then, when their administrative requests were denied, filed separate actions in respondent court for refund. The FTB responded with cross complaints for the unpaid 85
percent of the assessed penalties.  After the two actions were joined, the parties agreed to a bifurcation whereby they agreed to submit to respondent court the issue of whether the 2003 version of section 19177 applied to Quellos’ 2001 transactions.
After hearing argument, and considering the voluminous papers and requests for judicial notice of the legislative history for the 2003 enactments, respondent court filed a tightly-reasoned 16-page statement of decision largely accepting Quellos’ view of the matter. The court’s conclusion was that “No iteration of Section 19177 supports the imposition of the fifty percent penalty on Quellos’ 2001 alleged promotional activities. Instead, the maximum penalty allowed against each is $1, 000. The Quellos are each entitled to a refund from the FTB of the amount paid in excess of that maximum.”
The FTB then commenced these original proceedings, filing a petition for each of the actions against the separate Quellos entities, seeking a writ of mandate “directing respondent superior court to set aside and vacate its Statement of Decision and enter a Statement of Decision holding that the 2003 amendments to section 19177 apply to all promoter penalty assessments issued on or after January 1, 2004, including those assessments that penalize promoter activities that occurred prior to January 1, 2004.” After issuing an order to show cause and receiving Quellos’ return, we ordered the two proceedings consolidated for purposes of argument and decision.
The Propriety of Review by Extraordinary Writ Petition
Respondent court’s written decision was in effect a ruling on an issue of law in a bifurcated trial, akin to a ruling on an in limine motion. Ordinarily, such an interlocutory ruling is not appealable and must await entry of a final judgment to secure review by an appellate court. (Alan v. American Honda Motor Co., Inc. (2007) 40 Cal.4th 894, 901 [55 Cal.Rptr.3d 534, 152 P.3d 1109]; Babb v. Superior Court (1971) 3 Cal.3d 841, 851 [92 Cal.Rptr. 179, 479 P.2d 379]; 9 Witkin, Cal. Procedure (8th ed. 2008) Appeal, § 119, p. 183.)  The ordinary processes of an appeal are therefore not an adequate remedy at this time. (Code Civ. Proc., § 1086; 8 Witkin, Cal. Procedure, supra, Extraordinary Writs, §§ 116, p. 1009 & 127, pp. 1009, 1020.) But expedited review is sometimes permitted in exceptional circumstances. Here, the issue is whether Quellos’ collective liability is $2, 000 or almost $27 million with similar disparities present in the follow-on cases to this case. This, as described by the FTB, presents a strong case for extraordinary interlocutory
review: “The Board has assessed increased section 19177 penalties post-2004 against not just these plaintiffs, but also against numerous entities in the banking, accounting and financial management community who promoted abusive tax shelters to multitudes of taxpayers pre-2004, At least 1525 transactions and $300, 000, 000 in total penalties are at stake.  The trial court’s ruling is the first judicial decision on the issue, and it is being closely followed by the Board and other promoters subject to these same promoter penalties. [¶] Without an expeditious appellate resolution, the parties will have to litigate Quellos’ liability—a process that would involve months of discovery, motion practice, and ultimately a protracted trial—even if the final result would only be a $1000 penalty. For the same reasons, if writ review is not accepted now, numerous other actions involving increased promoter penalties will also have to determine the legality of the penalty amount over and over again, as well as each promoter’s liability for each individual
transaction, even if the penalty is ultimately determined by this Court to be $1000 per transaction. A quick and final appellate resolution of the legality of the penalty amount now would result in the streamlining, and in many cases the virtual elimination of many similarly situated cases.” And, “If review is not granted it will take months of expensive, protracted litigation before any appealable judgment can be entered. To conduct a liability trial simply to generate an appealable judgment would be a waste of resources and truly inefficient, especially when the appellate court could review the core legal issue on an extraordinary writ [petition].” Although disagreeing as to some details, Quellos concurs that expedited review is both “warranted” and “needed” to consider this “important legal issue of first impression.”
It thus appears all of the points raised by the FTB come within the following formulation: “Relief by mandamus is appropriate where it will prevent a needless, expensive trial and an ultimate reversal [citation], particularly where the issue presented is purely one of law and it is in the public interest to have a prompt settlement of the question presented [citations].” (City of Huntington Beach v. Superior Court (1978) 78 Cal.App.3d 333, 339 [144 Cal.Rptr. 236]; see 8 Witkin, Cal. Procedure, supra, Extraordinary Writs, §§ 134-135, pp. 1028-1033 and decisions cited.) A final factor favoring accelerated consideration is that it will let state authorities know if they may budget for future income generated by retroactive application of the 2003 version of section 19177. For each and all of these considerations, we conclude that speedy review is appropriate.
The Nature of the Problem
Our Supreme Court has held that there is a “strong presumption” against applying a statute retroactively. (McClung v. Employment Development Dept. (2004) 34 Cal.4th 467, 475 [20 Cal.Rptr.3d 428, 99 P.3d 1015].) The court elaborated: “ ‘Generally, statutes operate prospectively only.’ [Citations.] ‘[T]he presumption against retroactive legislation is deeply rooted in our jurisprudence, and embodies a legal doctrine centuries older than our republic. Elementary considerations of fairness dictate that individuals should have an opportunity to know what the law is and to conform their conduct accordingly.... For that reason, the “principle that the legal effect of conduct should ordinarily be assessed under the law that existed when the conduct took place has timeless and universal appeal.” ’ [Citations.] ‘The presumption against statutory retroactivity has consistently been explained by reference to the unfairness of imposing new burdens on persons after the fact.’ [Citation.] [¶] This is not to say that a statute may never apply retroactively. ‘[A] statute’s retroactivity is, in the first instance, a policy determination for the Legislature and one to which courts defer absent “some constitutional objection” to retroactivity.’ [Citation.] But it has long been
established that a statute that interferes with antecedent rights will not operate retroactivity unless such retroactivity be ‘the unequivocal and inflexible import of the terms, and the manifest intention of the legislature.’ [Citations.] ‘[A] statute may be applied retroactively only if it contains express language of retroactivity or if other sources provide a clear and unavoidable implication that the Legislature intended retroactive application. [Citation.]” (Ibid.) Ambiguous statutory language will not suffice to establish such an intent. (Myers v. Philip Morris Companies, Inc. (2002) 28 Cal.4th 828, 841 [123 Cal.Rptr.2d 40, 50 P.3d 751].)
A statute is deemed to be retroactive if it substantially changes the legal consequences of past events. (Californians for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 230-231 [46 Cal.Rptr.3d 57, 138 P.3d 207]; Western Security Bank v. Superior Court (1997) 15 Cal.4th 232, 243 [62 Cal.Rptr.2d 243, 933 P.2d 507]; River Garden Retirement Home v. Franchise Tax Board (2010) 186 Cal.App.4th 922, 956-957 [113 Cal.Rptr.3d 62].) "Phrased another way, a statute that operates to ‘increase a party’s liability for past conduct’ is retroactive.” (Myers v. Philip Morris Companies, Inc., supra, 28 Cal.4th 828, 839, quoting Landgraf v. USI Film Products (1994) 511 U.S. 244, 280 [128 L.Ed.2d 229, 114 S.Ct. 1483].) "'If so, then application to... preenactment conduct is forbidden, absent an express legislative intent to permit such retroactive application.’ ” (Californians for Disability Rights v. Mervyn’s, LLC, supra, at p.231, quoting Elsner v. Uveges (2004) 34 Cal.4th 915, 937 [22 Cal.Rptr.3d 530, 102 P.3d 915].)
“Laws which... exact new penalties because of past transactions” qualify as retroactive measures. (Pignaz v. Burnett (1897) 119 Cal. 157, 160 [51 P. 48]; accord, In re Marriage of Reuling (1994) 23 Cal.App.4th 1428, 1439 [28 Cal.Rptr.2d 726]; Helm v. Bollman (1959) 176 Cal.App.2d 838, 841 [1 Cal.Rptr. 723].) Increasing Quellos’ collective fines from $2, 000 to almost $27 million satisfies any definition of a substantial change in the liability Quellos may face for actions taken in 2001. The operative question is whether this increase was intended to be retroactive by the Legislature when it enacted the 2003 enactments amending section 19177. This inquiry involves a pure issue of law to which we bring our independent, de novo review. (In re Tobacco II Cases (2009) 46 Cal.4th 298, 311 [93 Cal.Rptr.3d 559, 207 P.3d 20]; People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 432 [101 Cal.Rptr.2d 200, 11 P.3d 956].)
Our Resolution Of The Problem
The FTB and Quellos expend considerable effort in parsing and analyzing the language of section 15(a), which figured prominently in respondent court’s statement of decision. Indeed, the FTB commences its argument by
telling us that “principles of statutory construction compel a reading of section 15(a) that applies the increase in the promoter penalty to all assessments issued on or after January 1, 2004.” But the FTB is putting the cart before the horse.
The issue of whether the 2003 version of section 19177 is retroactive is initially approached by looking to nothing but the actual language of that statute. We recently explained the steps in the process for ascertaining statutory meaning:
“When interpreting a statute, ‘[o]ur fundamental task... is to ascertain the intent of the lawmakers so as to effectuate the purpose of the statute.’ [Citation.] When determining what the Legislature meant, ‘ “[t]he statutory language itself is the most reliable indicator, so we start with the statute’s words, assigning them their usual and ordinary meanings, and construing them in context. If the words themselves are not ambiguous, we presume the Legislature meant what it said, and the statute’s plain meaning governs. On the other hand, if the language allows more than one reasonable construction, we may look to such aids as the legislative history of the measure and maxims of statutory construction. In cases of uncertain meaning, we may also consider the consequences of a particular interpretation.” ’ ” [Citation.]” (Dacey v. Taraday (2011) 196 Cal.App.4th 962, 979-980 [126 Cal.Rptr.3d 804].)
The plain language of the 2003 version of section 19177 is silent on the issue of retroactivity. Simply put, there are no words indicating that the Legislature even considered the issue. Thus, the statutory language of section 19177 has “nothing... to overcome the strong presumption against retroactivity.” (McClung v. Employment Development Dept., supra, 34 Cal.4th 467, 475.) But we do not choose to halt our analysis here.
As previously shown, all versions of section 19177 have retained the reference to “Section 6700 of the Internal Revenue Code.” This incorporation makes it proper to consult the federal statute for whatever pertinency it may have on the issue of retroactivity. (See § 9 [“Whenever any reference is made to any portion of this code or of any other law, the reference applies to all amendments and additions thereto now or hereafter made”]; Droeger v. Friedman, Sloan & Ross (1991) 54 Cal.3d 26, 50 [283 Cal.Rptr. 584. 812 P.2d 931] ["even though a statute may appear to be unambiguous on its face, when it is considered in light of closely related statutes a legislative purpose may emerge that is inconsistent with, and controlling over, the language read without reference to the entire scheme of the law”]; 2B Singer & Singer,
Statutes and Statutory Construction (7th ed. 2012) Interpretation by Reference to Related Statutes, §§ 51:7-51:8, pp. 306-315.) That consultation, too, is fruitless, because in none of its versions (see legislative materials cited at fn. 2 and accompanying text, ante) has Congress ever inserted language evidencing an intent for retroactive application.
But here there is an unusual wrinkle: the uncodified section 15 enacted with the 2003 version of section 19177. Both the FTB and Quellos treat the language of the uncodified section 15 as highly pertinent, if not dispositive. This assumption will be likewise indulged. (Droeger v. Friedman, Sloan & Ross, supra, 54 Cal.3d 26, 50.)
We recently explained that uncodified language such as section 15 “is known as a ‘plus section, ’ which our Supreme Court termed ‘a provision of a bill that is not intended to be a substantive part of the code section or general law that the bill enacts, but to express the Legislature’s view on some aspect of the operation or effect of the bill. Common examples of “plus sections” include severability clauses, saving clauses, statements of the fiscal consequences of the legislation, provisions giving the legislation immediate effect or a delayed operative date or a limited duration, and provisions declaring an intent to overrule a specific judicial decision or an intent not to change existing law.’ (People v. Allen (1999) 21 Cal.4th 846, 858–859, fn. 13 [89 Cal.Rptr.2d 279, 984 P.2d 486].) The court subsequently explained that ‘statements of the intent of the enacting body..., while not conclusive, are entitled to consideration. [Citations.] Although such statements in an uncodified section do not confer power, determine rights, or enlarge the scope of a measure, they properly may be utilized as an aid in construing a statute.’ (People v. Canty (2004) 32 Cal.4th 1266, 1280 [14 Cal.Rptr.3d 1, 90 P.3d 1168].)" (Sequoia Park Associates v. County of Sonoma (2009) 176 Cal.App.4th 1270, 1287, fn. 8 [98 Cal.Rptr.3d 669], italics added.)
“An uncodified section is part of the statutory law.” (Carter v. California Dept. of Veterans Affairs (2006) 38 Cal.4th 914, 925 [44 Cal.Rptr.3d 223, 135 P.3d 637].) Because uncodified section 15 and the 2003 version of section 19177 obviously deal with the subject of penalizing abusive tax shelters, it is appropriate to construe them together, an approach that “ ‘ “is most justified and... has the greatest probative force, in the case of statutes relating to the same subject matter that were passed at the same session of the legislature, especially if they were passed or approved or take effect on the
same day....” ’ ” (International Business Machines v. State Bd. of Equalization (1980) 26 Cal.3d 923, 932 [163 Cal.Rptr. 782, 609 P.2d 1].) That is certainly the case with the virtually identical 2003 enactments. (See fn. 5, ante.)
According to the Board, income for promoting an abusive tax shelter is usually discovered from an examination of the taxpayer’s return, and then backtracked to the promoter, a process that commonly takes years. Thus, as the FTB puts it, “here, the Board assessed the promoter penalty against Quellos in 2009, although the promoters’... activities occurred in 2001. That is because it took years for the Board to determine if a tax abuse scheme took place, and if tax advisors participated in the promotion of that scheme.” It follows, as the Board concedes, the section 19177 penalty is not one “assessed... on [a] return” within the meaning of the first sentence of section 15(a). This accords with the construction given the federal counterpart to section 19177. (See Sage v. United States (5th Cir. 1990) 908 F.2d 18, 25 [“ ‘....Section 6700 assessments do not depend on the filing of a tax return’ ”].)
However, the Board first maintains the increased penalty is still within this sentence because it is “assessed” on or after January 1, 2004, and therefore “necessarily include[s] penalties imposed as a result of activities conducted prior to January 1, 2004.” As the Board elaborates: “The key term in that [part of] section 15(a) is the word ‘apply.’ Black’s Law Dictionary defines ‘apply’ to mean ‘to employ’ or ‘to put to use with a particular subject matter.’ [Citation.] Applying or employing the increased penalty rate on or after January 1, 2004 to the section 19177 penalty means that all section 19177 penalties assessed on or after January 1, 2004 must reflect the increased penalty amount. [¶] By finding that the second sentence expresses a prospective-only application, the superior court in effect ruled that that the increased penalty provisions apply only to penalties for activities that occurred on or after January 1, 2004. However, such a reading is contrary to law because that interpretation would require this Court to insert the words ‘to activities’ into the language of the statute. This the Court cannot do.”
The Board’s next argument segues from “activities” to “taxable years.” The argument begins with the premise of respondent court’s “implied finding that the 2003 amendments to section 19177 apply to ‘activities’ that occur on or after January 1, 2004.” The Board submits that such a determination “is equivalent to saying that [the second sentence of section 15(a) is] applicable for the taxable years beginning January 1, 2004. But section 15(a) does not include any references to taxable years. In fact, it is the very absence of the words ‘to activities’ or ‘taxable years beginning January 1, 2004’ that reinforces the conclusion that the Legislature did not intend to delay application of the increased penalty rate until penalties are assessed for activities that occurred on or after January 1, 2004.
“The Revenue and Taxation Code provides that unless a legislative act ‘otherwise specifically provided therein, ’ the provisions of an act which affect the imposition of taxes or penalties ‘shall be applied to the taxable years beginning on or after January 1 of the year in which the act takes effect.’ (§ 18415, subd. (a), (emphasis added).) Here, section 15(a) did otherwise specially provide. Had section 15(a) not specifically stated that the act’s provisions applied on or after January 1, 2004, the increased penalty amendments to section 19177 would have been applicable to the taxable years beginning January 1, 2004, pursuant to section 18415. The Legislature’s intentional use of language specifically providing for a different application date reflects the Legislature’s intention for that date to apply, and for the general provisions set forth in section 18415 to be overridden.”
The Board maintains that “[t]he absence of any reference to the ‘beginning of a taxable year’ is underscored by the fact that the Legislature included the phrase ‘beginning of a taxable year’ in section 15(b) and (c) when other penalties went into effect, but did not include that term in section 15(a). ‘It is an equally settled axiom that when the drafters of a statute have employed a term in one place and omitted it in another, it should not be inferred where it has been excluded.’ (People v. Woodhead (1987) 43 Cal.3d 1002, 1010 [239 Cal.Rptr. 656, 741 P.2d 154].) Had the Legislature intended to apply the increased promoter penalties beginning as of taxable year 2004, it would have said so. But it did not.”
Finally, citing legislative history materials demonstrating the Legislature’s supposed desire for “immediate action” against “all of the players in the abusive tax shelter industry, ” the Board contends the second sentence of section 15(a) demonstrates that “the Legislature intended to make the amendments to section 19177 apply to all promoter penalties assessed on or after January 1, 2004, including those penalties based on promoter activities that occurred prior to that date.” “[T]he public policy that compelled the Legislature to become a trailblazer in the area of tax shelter reform could only be effectuated if the increased penalties were applied immediately to all assessments, including those for past conduct.” Any other construction would, in the Board’s view, produce the absurd result of the most culpable participant in abusive shelters escaping with only the risible penalty of $1, 000.
The Board’s arguments are creative, and are obviously the product of considerable thought. They are not, however, persuasive.
Although section 15(a) has received most of the FTB’s and Quellos's attention, the entirety of section 15 merits quotation in full:
“(a) Unless otherwise provided, this act shall apply with respect to any penalty assessed on or after January 1, 2004, on any return for which the statute of limitations on assessment has not expired. All other provisions of this act shall apply on or after January 1, 2004.
“(b) Except as provided in subdivision (c), Sections 18407, 19772, and 19773 of the Revenue and Taxation Code, as amended or added by this act, apply to taxable years beginning on or after January 1, 2003.
“(c)(1) The penalty provisions of Section 19772 apply to any person that satisfies both of the following:
“(A) The person is subject to the provisions of Sections 18407 and 19772.
“(B) The person has invested in a transaction after February 28, 2000, and before January 1, 2004, where that transaction becomes a listed transaction at any time.
“(2)(A) A person that is subject to the provisions of Section 611 of the Internal Revenue Code as incorporated and modified by Section 18648,
 must register a tax shelter with the Franchise Tax Board before April 30, 2004, if that tax shelter was offered for sale between February 28, 2000, and January 1, 2004, and becomes a listed transaction on or before January 1, 2004.
“(B) The penalty under Section 19173 applies for a failure to register the tax shelter under subparagraph (A).
“(3)(A) Subdivision (c) of Section 18648 does not apply to licensed attorneys in the case of a transaction that was entered into before January 1, 2004, if the attorney is considered a material advisor solely due to the practice of law.
“(B) The provisions of subparagraph (A) shall only apply to an attorney offering advice in an attorney-client relationship where:
“(i) Legal advice of any kind is sought from a professional legal adviser in his or her capacity as a professional legal adviser;
“(ii) The communications are made in confidence and relate to that purpose; and
“(iii) The communications are made or received by the client.
“(4) For purposes of applying Section 19778 of the Revenue and Taxation Code,
 section 18407 of the Revenue and Taxation Code, as added by this act, applies for taxable years beginning after December 31, 1998.” (Stats. 2003, ch. 654, § 15, p. 5037; Stats. 2003, ch. 656, § 15, p. 5064.)
The function of section 15 is obvious. The 2003 enactments did not involve a single statute, but a systematic adjustment of the entire subject of abusive tax shelters. Many of the provisions concerned the specification of the new duties imposed on a variety of parties, and in numerous instances the Legislature specified when the new duties would take effect.  Equally
prominent was a number of new or increased penalties imposed on those parties. Rather than insert language addressing retroactivity into each of these provisions, the Legislature obviously elected to use section 15 as a collection point for a number of determinations concerning the scope of application. Clearly, this was not an instance where the legislative intention must be divined from a complete silence or lack of expression.
No less apparent is that the Legislature rejected the idea of a single universal rule of retroactive application. Instead, section 15 very clearly reflects a number of considered decisions by the Legislature as to what new or enhanced duty should receive what specific penalty commencing on what specific date.
The FTB’s first two arguments, each of which seize upon a single word, will not detain us long. The first is built entirely on the word “assessed, ” the second on the word “apply, ” both in the language “this act shall apply with respect to any penalty assessed on or after January 1, 2004, on any return for which the statute of limitations on assessment has not expired.” Both of these arguments isolate one word and ignore the rest of the language—and thus the context. This is contrary to bedrock principles of statutory construction. (Smith v. Superior Court (2006) 39 Cal.4th 77, 83 [45 Cal.Rptr.3d 394, 137 P.3d 218]; Alford v. Superior Court (2003) 29 Cal.4th 1033, 1040 [130 Cal.Rptr.2d 672, 63 P.3d 228].) The language of the entire sentence can only be read as dealing with the assessment of “any penalty... on any return, ” which the FTB advises is not what happens with shelter promoters. The simple fact that an assessment may be on someone or after January 1, 2004 is irrelevant to whether a non-return based penalty is to be imposed on the promoter. And the proper context for “apply” is again “any penalty assessed on... any return.”
The Board’s next argument appears but a variation on the first, assuming as it does that “application” is still dependent upon a return-based penalty, even if this does “necessarily include penalties imposed as a result of activities conducted prior to January 1, 2004.” If the Board means to suggest that so long as a taxpayer’s return remains liable for a penalty assessment (a period that can be quite extensive),  the promoter is subject to a co-extensive period
of vulnerability, this is untenable bootstrapping. Such vicarious liability tortures beyond any reasonable endurance the language of section 15(a)’s first sentence. It makes nonsense of the sentence’s central emphasis—the existence of a penalty “assessed on.... [a] return.” And it cannot be squared with the Board’s position that section 19177’s penalty is not within this language.
The Board’s argument about “taxable years” is equally groundless. It is predicated upon a supposed “implied finding” made by respondent court, as if such a finding would control our analysis. However, as already noted, that analysis is independent and de novo. (In re Tobacco II Cases, supra, 46 Cal.4th 298, 311; People ex rel. Lockyer v. Shamrock Foods Co., supra, 24 Cal.4th 415, 432.) True, as the Board argues, “section 15(a) does not include any references to taxable years, ” but that is the function of section 18415, which inserts such a reference by operation of law. It is only when the Legislature intends a different date that it makes that intent clear with specific language, which, as the Board notes, was done with uncodified section 15, subdivisions (b) and 15(c)(4). So, when the Board argues that “[t]he absence of... language providing that provisions apply as of a particular taxable year reinforces the conclusion that the Legislature intended the [the 2003 version of section 19177] to apply immediately, ” the Board is reversing the correct interpretation and application of section 18415. The absence of “taxable year beginning on or after January 1, 2004” attached to the 2003 version of section 19177 therefore lacks the legal consequence claimed by the Board with its citation to People v. Woodhead, supra, 43 Cal.3d 1002.
If anything, the Board’s logic works against its argument because the absence of language in section 15(a) of a taxable year other than the one beginning January 1, 2004 must be accounted as evidence the Legislature did not intend the 2003 version of section 19177 to apply to any earlier taxable years. Which, as the Board points out, the Legislature did in uncodified section 15, subdivision (b): “Sections 18407, 19772, and 19773 ... as amended or added by this act, apply to taxable years beginning on or after January 1, 2003.” And in uncodified section 15, subdivision (c)(4): “For purposes of applying section 19778 . . ., section 18407 ... as added by this act, applies for taxable years beginning after December 31, 1998.” To quote the Board:
“Had the Legislature intended to apply the increased promoter penalties [prior to the] taxable year 2004, it would have said so. But it did not.” Accordingly, the absence of a reference to taxable year, and an express connection to section 19177, must work against the Board’s contention that retroactive application was intended.
We have inspected the voluminous legislative histories of the 2003 amendments and found virtually nothing supportive of the Board’s arguments. The FTB fails to draw our attention to anything showing that the Legislature was aware of the delay in ascertaining the identity of shelter promoters entailed by FTB’s administrative procedures, much less that this situation was intended to be addressed by any part of section 15. Granted, given the peculiar evolution of the 2003 enactments (see fn. 5, ante), much of this material is repetitive and overlapping. And much is devoted to the need for action, the scope of the proposed measures vis-à-vis parallel federal legislation, and the mechanics and expectations of the amnesty program. (See fn. 10, ante.) As may be gathered from the gigantic escalation in penalties imposed by the 2003 version of 19177, the promoters of abusive tax shelters did not escape attention. As the FTB repeatedly states, the 2003 enactments
represented a “comprehensive” and “multi-faceted effort” by the Legislature that included “increased penalties against all of the players in the abusive tax shelter industry—taxpayers (investors), tax preparers, tax advisors and promoters.” That broad front approach is also reflected in section 15 which is devoted exclusively to the issue of retroactivity.
Look at the language of section 15. Really look at it, all of it. Section 15 is a honeycomb of disparate decisions reflecting that the Legislature considered the issue of retroactivity from many different angles. The Legislature did not adopt a single standard for retroactivity. Instead, it chose multiple, and differing, chronological points at which different obligations and penalties would commence. In light of this comprehensive approach, it would be difficult to maintain that the Legislature inadvertently omitted something.
Promoter penalties were not neglected in section 15. Uncodified section 15, subdivision (c)(2)(A) and (B) clearly specify that promoters are to be penalized for failing to register a tax shelter if the shelter “was offered for sale between February 28, 2000, and January 1, 2004.” Meanwhile, subdivision (c)(1)—and section 19772 that it references—penalizes taxpayers who fail to report income from a shelter for almost that exact same period. Had the Legislature intended to impose section 19177 penalties on promoters for the taxable years 2000 through 2004, as the FTB contends it did, one would logically expect such intent to be expressed in close vicinity to this language. Or, of course, in section 19177 itself. Yet such language is missing from both locations. And, as the Board reminds us, it is not for us to read it in. (People v. Woodhead, supra, 43 Cal.3d 1002, 1010; cf. Samantar v. Yousuf (2010) 560 U.S. 305, 317 [176 L.Ed.2d 1047, 130 S.Ct. 2278, 2288] [“ ‘Drawing meaning from silence is particularly inappropriate . . . [when] Congress has shown that it knows how to [address an issue] in express terms’ ”].)
Both before respondent court, and here, the FTB places considerable emphasis on the argument that retroactive application of the 2003 version of section 19177 will advance the Legislature’s goal of deterring the use of
abusive tax shelters. Undoubtedly it would. But the issue here is whether a clear and unmistakable intent to promote that objective can be discerned from the language of section 15, more particularly, the silence of section 15. It cannot. As already pointed out, the Legislature did not employ the necessary language it did in other places in section 15 evidencing its intent for retroactivity.
It is pertinent to note that in one crucial aspect the Legislature treated taxpayers with unique severity, doubling the statute of limitations for deficiency assessments from four to eight years, and specifically providing that this change “shall apply to any return filed under this part on or after January 1, 2000.” (Stats. 2003, ch. 654, § 13, p. 5027; Stats. 2003, ch. 656, § 13, p. 5055, adding § 19755.) The theory behind this change was “[l]engthening the statute of limitations on FTB’s ability to issue deficiencies in cases involving the use of tax shelters is intended to allow FTB to pursue individuals who used tax shelters that were found to be illegal after the end of the current four-year statute of limitations.” (Off. of Assem. Floor Analysis, 3d reading analysis of Assem. Bill No. 1601 (2003-2004 Reg. Sess.) as amended May 19, 2003, p. 6.) Equivalent language was not directed at shelter promoters, nor added to the 2003 version of section 19177.
The situation may be summarized as follows: The Legislature wanted to quash the burgeoning growth of abusive tax shelters by enacting a comprehensive scheme against all parties involved in that growth. Increased penalties were a prominent feature, perhaps the most prominent, of that scheme, and the most draconian, section 19177, was aimed squarely at promoters of the shelters. The Legislature’s scheme was enacted with a provision, section 15, that dealt with the sole subject of whether, and to what extent, various features of the scheme would be retroactively applied. In that provision, the Legislature expressly authorized retroactive application of a penalty against taxpayers, as well as retroactive application of a new duty on promoters for the same period, 2001 to 2004. But it did not provide for the equivalent retroactive reach for section 19177 for which the FTB now argues.
As citizens and taxpayers, we might debate whether the Legislature let shelter promoters too easily off the hook, and whether it is unfair to double the statute of limitations against taxpayers but not against promoters. It might indeed seem absurd to make a promoter write a check for a thousand dollars when the taxpayer who bought the promoter’s scheme will have to pay far more. There is an undeniable logic to the Board’s argument that taxpayers may be, relatively speaking, less culpable than promoters, so it might seem odd that enhanced penalties apply to taxpayers but not to promoters. Such
might strike many as a misguided approach to deterring the proliferation of abusive tax shelters. Maybe the Legislature truly intended that, as between promoters and taxpayers, it should be the promoters who are more sternly disciplined. Maybe that is a conclusion we would like to reach. Certainly it is a conclusion that appears in the best interest of the California fisc. But it is not a conclusion we can endorse.
Making such determinations and choices is what legislatures do; it defines the legislative function. (E.g., FCC v. Beach Communications, Inc. (1993) 508 U.S. 307, 315-316 [124 L.Ed.2d 211, 113 S.Ct. 2096]; United States v. Ptasynski (1983) 462 U.S. 74, 82 [76 L.Ed.2d 427, 103 S.Ct. 2239]; Warden v. State Bar (1999) 21 Cal.4th 628, 645 [88 Cal.Rptr.2d 283, 982 P.2d 154].) As judges, the wisdom of such policy decisions, particularly when they address economic or financial considerations, is beyond our proper inquiry. (See Service Employees Internat. Union, Local 1000 v. Brown (2011) 197 Cal.App.4th 252, 273 [128 Cal.Rptr.3d 711] and decisions cited.) Retroactivity determinations are likewise “ ‘a policy determination for the Legislature and one to which courts defer “absent some constitutional objection” to retroactivity.’ ” (McClung v. Employment Development Dept., supra, 34 Cal.4th 467, 475.) There is no such objection here. (See fn. 8, ante.)
There is no express language of retroactivity in the 2003 version of section 19177. There is no language in any part of the 2003 enactments that comes near rebutting the strong presumption against giving the 2003 version of section 19177 a retroactive application. Our careful examination of the legislative histories attending the 2003 enactments has disclosed nothing proving that retroactivity of the 2003 version of section 19177 was “ ‘the unequivocal and inflexible import of [its] terms and the manifest intention....’ [Citations.] ‘... that the Legislature intended retroactive application.’ ” (McClung v. Employment Development Dept., supra, 34 Cal.4th 467, 475.) Acceding to the FTB’s construction of the 2003 version of section 19177 would amount to a wholly improper rewriting of that statute in the belief that this court knows what the Legislature really intended. (Code Civ. Proc., § 1858; Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 545 [67 Cal.Rptr.3d 330, 169 P.3d 559]; Cornette v. Department of Transportation (2001) 26 Cal.4th 63, 73-74 [109 Cal.Rptr.2d 1, 26 P.3d 332]; People v. Woodhead, supra, 43 Cal.3d 1002, 1010.) In quite properly refusing the FTB’s invitation to do so, and by correctly recognizing that the second sentence of section 15(a) furnishes the controlling principle, respondent court committed no error of law necessitating extraordinary intervention.
The petitions are denied.
Kline, P.J., and cBrick, J.[*], concurred.