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Income Taxes
 3 Months Ended
Mar. 31, 2013
Income Tax Disclosure [Abstract]  
Income Taxes
Income taxes

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

Effective tax rate
Three months ended
  
March 31,
2013

March 31,
2012

Federal rate
35.0
 %
35.0
 %
State and local income taxes, net of federal income tax benefit
1.7

3.1

Tax-exempt income
(3.0
)
(2.1
)
Foreign operations
(5.0
)
(4.4
)
Tax credits
(5.5
)
(2.7
)
Tax litigation
105.6

—

Other - net
0.5

(0.2
)
Effective rate
129.3
 %
28.7
 %
 


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. Trial was held from April 16 to May 17, 2012. On Feb. 11, 2013, BNY Mellon received an adverse decision from the U.S. Tax Court.  We continue to believe the tax treatment of the transaction was correct and will appeal the Court’s decision. As a result of the ruling and in accordance with the accounting for uncertain tax positions under ASC 740, BNY Mellon recorded a tax charge of $854 million in the first quarter of 2013.

Our total tax reserves as of March 31, 2013 were $1,050 million compared with $340 million at Dec. 31, 2012. If these tax reserves were unnecessary, $1,050 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 at March 31, 2013 is accrued interest, where applicable, of $323 million. The additional tax expense related to interest for the three months ended March 31, 2013 was $289 million compared with $3 million for the three months ended March 31, 2012.

It is reasonably possible the total reserve for uncertain tax positions could decrease within the next 12 months by an amount up to $72 million as a result of adjustments related to tax years that are still subject to examination.

Our federal income tax returns are closed to examination for all periods through 2002. The years 2003 through 2006 remain open to examination. The years 2007 and 2008 are closed for further examination, however one matter is before the Internal Revenue Service (“IRS”) appeals. Our New York State and New York City income tax returns are closed to examination through 2010. Our UK income tax returns are closed to examination through 2008.