According to FTB Publication 1001 on page 9, undistributed capital gains from an RIC are reported on federal Form 2439; Notice to Shareholder of Undistributed Long-Term Capital Gains, to be included in the gross income of the mutual fund shareholder is reported on a federal return but not reported on a California return. This is why you are receiving a bigger refund after making an adjustment in your California return.
California's tax treatment of Regulated Investment Company (RIC) capital gains differs from federal tax rules in some cases. Based on what I found, California generally taxes undistributed capital gains from RICs in the year they are distributed, rather than the year they are earned. It appears you made this adjustment correctly.
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