Note 11 – Income taxes

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


Effective tax rate	Six months ended
	June 30, 2012			June 30, 2011
Federal rate		35.0	%		35.0	%
State and local income taxes, net of federal income tax benefit		2.4			3.0
Credit for low-income housing investments		(2.3	)		(1.6	)
Tax-exempt income		(3.3	)		(3.7	)
Foreign operations		(5.3	)		(3.5	)
Other – net		(3.0	)		(1.2	)
Effective tax rate		23.5	%		28.0	%

Our total tax reserves as of June 30, 2012 were $263 million compared with $261 million at March 31, 2012. If these tax reserves were unnecessary, $263 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 June 30, 2012 is accrued interest, where applicable, of $67 million. The additional tax expense related to interest for the six months ended June 30, 2012 was $8 million compared with $5 million for the six months ended June 30, 2011.

As previously disclosed, on November 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. 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. The trial was held from April 16 to May 17, 2012. Post-trial briefing is scheduled to conclude Sept. 13, 2012. See Note 17 of the Notes to Consolidated Financial Statements for additional information. The Tax Court could reach a decision within the next 12 months. If there is an adverse decision, BNY Mellon will be required to re-evaluate its uncertain tax position with respect to this matter.

Pursuant to ASC 740 (FASB Interpretation 48), it is reasonably possible the total reserve for uncertain tax positions, could increase within the next 12 months by an amount up to $930 million as a result of the above matter and adjustments related to tax years that are still subject to examination.

As of June 30, 2012, our federal consolidated income tax returns are closed to examination through 2002. Our New York State and New York City returns are closed to examination through 2008. Our United Kingdom income tax returns are closed to examination through 2008.