I like the mistake idea and could easily justify it in a way they could have no response to as I'm guessing they don't have the original reg form request. By initiating that process, I could trap them on the error, but would that force them to apply an unpaid back fee penalty? Am I reading that right? is that what the second page says?

I'm a bit confused on whether the bike had been in storage for 30 years, or if one of the spouses was riding it offroad for 30 years, and just didn't pay the off-road fees. If it was in storage for 30 years, I would try to get the PO to sign a notarized statement stating such, then fill out the reg 265 explaining the story of the motorcycle. I've never had an off-road sticker, so I don't know if you stop riding if you need to notify them, like when you file a plan non-operation. If you're supposed to notify them, perhaps they'll try to ding you for those past fees, I don't know. That's what they tried to do to me as far as back registration, but I simply refused to pay it, and they gave in. And again, like your bike, mine had fallen completely out of the system so there was no file on it, as far as PNO or anything. But the key things are you have a dual purpose motorcycle, it was never sold as an MX model, and it does not require emissions. You have all the facts in your favor, as I said, you just need to keep pushing until you get to the right person.

Can't even try to answer your question on PNO because it's not clear what the facts were.  You haven't clarified if the bike was "off the books" and now you've mentioned a "registration application" which could mean someone applied for an off road title recently?    

I know California can be tough on PNO, here's a potential loophole.  I didn't look into it but there are ways to get around PNO on an old vehicle, especially if it was taken off the road before the PNO rule was enacted.  "Of historic interest and value as described in VC §§5004, 5004.5, or 5051 (also see Historical Interest Vehicles in this section)." 

If the bike was "off the books", you can't prove that happened before PNO was enacted but neither can they.  That strategy has worked for me.  I don't remember when PNO started, but your bike is definitely older than the law.  Previous owners never were sure exactly when bike was parked so the estimated date I used was a year or so before PNO was enacted.  

But again, facts are important.  If the bike was not off the books then the whole game changes.  If in the unlikely event somehow you made the mistake and somehow applied for an off road title, that's still a mistake and they can correct it.  (Maybe a misunderstanding?  They asked if you were going to register it on the street and you were still restoring it so your answer of "not just yet" was interpreted as "off road only" by mistake?)

Also, California has a rule about "transporting on or over" the road.  Transporting a bike in the back of a truck or on a trailer can sometimes trigger "operation".  

All "basket case" bikes I've bought have been partially disassembled to the point of not being street legal.  In my statement of facts, I learned to say the bike was "not running and disassembled".  (And/or tell the DMV that, best to do in statement of facts). They've never asked how much was disassembled and always waived PNO fees.  Parts can be transported without registration and are not a "vehicle" until assembled.

Of course if the unregistered bike was trailered from one place to another, the only way the DMV would know that is if you applied for a temporary permit to do that, or did it without a permit and got pulled over. So if it was transported but they didn't pull a permit, do not even mention it.

Tom P is correct.  Say as little as possible.  I got dinged on the PNO only one time when they asked me "how did you get it home?"  That's how I found out about the "on or over" law.  The bike was off the books and the lady agreed to only "backcharge" me from the date I picked the bike up.  

That's another strategy that works sometimes.  Put yourself in their shoes.  Maybe they are grilled by the manager if they don't backcharge if you don't have a PNO on file?  The logic I used was "if you don't have records, how do you know there's no PNO?  Or maybe this guy just moved here from Arizona or something?"  I don't know if either of those excuses are solid?  But I was ok with a few bucks since I did transport it over the road and she got to backcharge like $10.  Win-win.

The point of that ramble is that sometimes it's not the amount they ding you for back fees, it's whether they dinged you at all.