Spinning your wheels and probably delaying your clients' refunds.  Put yourself in the shoes of Block's state director.  They can't afford to tell thousands of customers every day to come back next week and maybe they'll have an answer.  They're adding in the MCTR in one place and subtracting it out in another.  Move on to the next one.  

IRS has never enacted a law in its history.  Its delayed opinion might be persuasive, but not the final word.  If it wants to interpret the law that Congress passed and the President signed to mean that these refunds are taxable, then you're correct that litigation will follow.  Or even in a gridlocked Congress, a law will be enacted to clarify that such payments are excluded.

I came across a list of the 19 states where there are issues similar to this one in California.  They are: 

Alaska, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Maine, Massachusetts, Minnesota, New Jersey, New Mexico, Oregon, Rhode Island, South Carolina, and Virginia.