Rule 4-2-2-d-2.
 

A is attempting a field goal. Kick hits upright and rebounds into field of play. B catches ball on the fly around the 5 yard line and runs downfield about 40 yards where he is tackled. B is awarded first down at that spot.

(As a side note this was a game between the 2 top ranked teams in our league and we had our most senior officials on the field.)

I was watching the game on the sideline and asked the side judge if the correct ruling should be a touchback. He went in to the referee but they did not change the ruling.

My interpretation of this rule is this: Once it is apparent the kick will not score, it becomes a touchback immediately because it has crossed the plane of R's goal line.

Also, under rule 1-2-5a. it states that the goal posts, including the uprights, are in the same vertical plane as the inside edge of the end line. Rule 1-2-3g. states that the boundary lines (sidelines and endlines) are out of bounds. Rule 4-2-2b. states that the ball becomes dead when a live ball goes out of bounds.

Is touchback the correct ruling?

Yes
 

Yes, this is definitely a touchback. The ball should be blown dead as soon as it is "apparent" that the three point try has failed, after having crossed the plane of the goal line. In this case the goal line is the boundary that is the concern, and the end line and other boundaries will not affect the play.

Mike,
We'd all love to hear the logic behind the ruling on the field. Hard to believe this could happen, but I hope this is discussed at your follow on meetings.

Re: Rule 4-2-2-d-2.
 

Yes it is a touchback and you covered all the appropriate rules.

Since it was a scoring attempt the ball did not become dead when it crossed the goal line. It became dead when it hit the upright as it was then apparent the kick had failed.

Does seem like on a five-man crew, at least, one official would have questioned the call.