Borchers

Appellants Robert H. and Josephine Borchers (taxpayers) timely appeal from a judgment in favor of respondents Franchise Tax Board and State Board of Equalization (collectively Board). Taxpayers had sued for a refund of income taxes for the year 1971 on the basis that annuity payments received by them should not have been included in their income.

The crux of the case is the proper interpretation of Revenue and Taxation Code section 17596 (section 17596). While this section has been construed by administrative boards, it has not been the subject of appellate consideration before. It reads as follows: “When the status of a taxpayer changes from resident to nonresident, or from nonresident to resident, there shall be included in determining income from sources within or without this State, as the case may be, income and deductions accrued prior to the change of status even though not otherwise includible in respect of the period prior to such change, but the taxation or deduction of items accrued prior to the change of status shall not be affected by the change.”

The case was tried on stipulated facts. These show that taxpayer, Mr. Borchers, worked in Illinois for many…