Note 5. Income Taxes

ASC 740, Income Taxes, defines the threshold for recognizing the benefits of tax return positions in the financial statements as "more-likely-than-not" to be sustained by the taxing authority. This section also provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties, and includes guidance concerning accounting for income tax uncertainties in interim periods.

A reconciliation of the beginning and ending unrecognized tax benefit related to State uncertain tax positions is as follows (in thousands):

	Three months ended March 31,
	2015		2014
Balance at January 1,	$	391	$	-
Increases due to tax positions taken during the current year		-
Increases due to tax positions taken during a prior year		-		-
Decreases due to the lapse of the statute of limitations during the current year		-		-
Decreases due to settlements with the taxing authorities during the current year		-		-
Balance at March 31,	$	391	$	-

Pinnacle Financial's policy is to recognize interest and/or penalties related to income tax matters in income tax expense. The total amounts of interest and penalties recorded in the income statement for the three months ended March 31, 2015 was $9,600. No interest and penalties were recorded for the three months ended March 31, 2014.

Pinnacle Financial's effective tax rate for the three months ended March 31, 2015 was 33.0% compared to 33.2% for the three months ended March 31, 2014. The effective tax rate differs from the Federal and State income tax statutory rate of 39.23% primarily attributable to our investments in bank qualified municipal securities, investments in low-rate housing loans that qualify for Tennessee state excise tax credits and bank-owned life insurance, offset in part by meals and entertainment, a portion of which is non-deductible.