Note 11 – Income taxes

The statutory federal income tax rate is reconciled to our effective income tax rate below:


Effective tax rate	Quarter ended
	March 31, 2012			March 31, 2011
Federal rate		35.0	%		35.0	%
State and local income taxes, net of federal income tax benefit		3.1			3.5
Credit for low-income housinginvestments		(1.8	)		(1.7	)
Tax-exempt income		(2.1	)		(2.9	)
Foreign operations		(4.4	)		(4.0	)
Other – net		(1.1	)		(0.6	)
Effective tax rate		28.7	%		29.3	%

Our total tax reserves as of March 31, 2012 were $261 million compared with $250 million at Dec. 31, 2011. If these tax reserves were unnecessary, $261 million would affect the effective tax rate in future periods. We recognize accrued interest and penalties, if applicable, related to income taxes in income tax expense. Included in the balance sheet as of March 31, 2012 is accrued interest, where

applicable, of $64 million. The additional tax expense related to interest for the three months ended March 31, 2012 was $3 million compared with $5 million for the three months ended March 31, 2011.

As previously disclosed, on Nov. 10, 2009 BNY Mellon filed a petition with the U.S. Tax Court challenging the IRS’ disallowance of certain foreign tax credits claimed for the 2001 and 2002 tax years. The aggregate tax for all of the years in question is approximately $900 million, including interest. Trial began on April 16, 2012. See Note 18 of the Notes to Consolidated Financial Statements for additional information. BNY Mellon continues to believe the tax treatment of the transaction was consistent with statutory and judicial authority existing at the time of the transaction. However, if there is a decision by the courts in similar litigation with unrelated taxpayers before the BNY Mellon matter is decided and that decision adopts the Government’s expansive view of economic substance for disallowing foreign tax credits, BNY Mellon may be required to re-evaluate its uncertain tax position with respect to this matter. If a re-evaluation is required, it is reasonably possible that the total reserve for uncertain tax positions, pursuant to ASC 740 (FASB Interpretation 48), could increase within the next 12 months by a net amount up to $850 million.

Our federal consolidated income tax returns are closed to examination through 2002. Our New York State and New York City return examinations have been completed through 2008. Our United Kingdom income tax returns are closed through 2008.