CYN » Topics » Income Taxes

This excerpt taken from the CYN 8-K filed Dec 2, 2009.

Income Taxes

        The Company and its subsidiaries file a consolidated federal income tax return and also file income tax returns in various state jurisdictions. The provision for income taxes includes current and deferred income tax expense on net income adjusted for permanent and temporary differences such as affordable housing tax credits and interest income on state and municipal securities. Deferred tax assets and liabilities are recognized for the expected future tax consequences of existing temporary differences between the financial reporting and tax reporting basis of assets and liabilities, as well as for operating losses and tax credit carry forwards, using enacted tax laws and rates. On a quarterly basis, management evaluates deferred tax assets to determine if these tax benefits are expected to be realized in future periods. This determination is based on facts and circumstances, including the Company's current and future tax outlook. To the extent a deferred tax asset is no longer considered "more likely than not" to be realized, a valuation allowance is established.

        Accrued income taxes represent the estimated amounts due or received from the various taxing jurisdictions where the Company has established a business presence. The balance also includes a contingent reserve for potential taxes, interest and penalties related to uncertain tax positions. On a quarterly basis, management evaluates the contingent tax accruals to determine if they are sufficiently reserved based on a probability assessment of potential outcomes. The determination is based on facts and circumstances, including the interpretation of existing law, new judicial or regulatory guidance and the status of tax audits. If a tax position which was previously recognized on the financial statements is no longer "more likely than not" to be sustained upon a challenge from the taxing authorities, the tax benefit from the tax position will be derecognized. The Company recognizes accrued interest and penalties relating to uncertain tax positions as an income tax provision expense.

        From time to time, the Company engages in business strategies that may also have an effect on its tax liabilities. If the tax effects of a strategy are significant, the Company's practice is to obtain the opinion of advisors that the tax effects of such strategies should prevail if challenged.

These excerpts taken from the CYN 10-Q filed May 4, 2009.

Note 8. Income Taxes

 

The Company recognizes accrued interest and penalties relating to unrecognized tax benefits as an income tax provision expense. The Company recognized approximately $0.5 million and $0.4 million of interest and penalties expense for the three-month periods ended March 31, 2009 and March 31, 2008, respectively. The Company had approximately $6.7 million, $6.3 million and $9.3 million of accrued interest and penalties as of March 31, 2009, December 31, 2008 and March 31, 2008, respectively.

 

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Note 8. Income Taxes (continued)

 

The Company and its subsidiaries file a consolidated federal income tax return and also file income tax returns in various state jurisdictions.  The Internal Revenue Service (“IRS”) completed its audits of the Company for the tax years 2002-2007 resulting in no material financial statement impact. The Company is currently being audited by the IRS for 2008 and by the Franchise Tax Board for the years 1998-2004. The potential financial statement impact, if any, resulting from completion of these audits cannot be determined at this time.

 

From time to time, there may be differences in opinion with respect to the tax treatment accorded transactions. If a tax position which was previously recognized on the financial statements is no longer “more likely than not” to be sustained upon a challenge from the taxing authorities, the tax benefit from the tax position will be derecognized. As of March 31, 2009, the Company does not have any tax positions which dropped below a “more likely than not” threshold.

 

Income Taxes

 

The effective tax rate for the first quarter of 2009 was 17.7 percent, compared to 32.3 percent for the first quarter of 2008.  The effective tax rate for the current and year-earlier quarter reflect the adoption of SFAS 160, Noncontrolling Interests in Consolidated Financial Statements.  SFAS 160 does not change the accounting for income taxes but it does change the presentation of income taxes in the consolidated financial statements. Under SFAS 160, noncontrolling interests’ share of subsidiary earnings is no longer recognized as an expense in the computation of consolidated net income. A decline in the effective tax rate occurs because consolidated net income includes earnings allocable to the noncontrolling interest for which no tax expense is provided.  SFAS 160 requires that prior periods presented be restated retrospectively.  Effective tax rates differ from the applicable statutory federal and state tax rates due to various factors, including tax benefits from investments in affordable housing partnerships and tax-exempt income on municipal bonds and bank-owned life insurance. The lower effective tax rate for first quarter of 2009 is attributable to lower pretax income relative to the year-earlier quarter. Permanent tax differences do not vary directly with the level of income and therefore have a larger relative impact on the effective tax rate when earnings are lower.

 

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The Company recognizes accrued interest and penalties relating to unrecognized tax benefits as an income tax provision expense. The Company recognized approximately $0.5 million and $0.4 million of interest and penalties expense for the three-month periods ended March 31, 2009 and March 31, 2008, respectively. The Company had approximately $6.7 million, $6.3 million and $9.3 million of accrued interest and penalties as of March 31, 2009, December 31, 2008 and March 31, 2008, respectively.

 

The Company and its subsidiaries file a consolidated federal income tax return and also file income tax returns in various state jurisdictions.  The Internal Revenue Service (“IRS”) completed its audits of the Company for the tax years 2002-2007 resulting in no material financial statement impact. The Company is currently being audited by the IRS for 2008 and by the Franchise Tax Board for the years 1998-2004. The potential financial statement impact, if any, resulting from completion of these audits cannot be determined at this time.

 

From time to time, there may be differences in opinion with respect to the tax treatment accorded transactions. If a tax position which was previously recognized on the financial statements is no longer “more likely than not” to be sustained upon a challenge from the taxing authorities, the tax benefit from the tax position will be derecognized. As of March 31, 2009, the Company does not have any tax positions which dropped below a “more likely than not” threshold.

 

These excerpts taken from the CYN 10-K filed Mar 2, 2009.

Income Taxes

        The calculation of the Company's income tax provision and related tax accruals requires the use of estimates and judgments. The provision for income taxes is based on amounts reported in the consolidated statements of income which are adjusted to reflect the permanent and temporary differences in the tax and financial accounting for certain assets and liabilities.

        Deferred income taxes represent the tax effect of the differences in tax and financial reporting basis arising from temporary differences in accounting treatment. On a quarterly basis, management evaluates its deferred tax assets to determine if these tax benefits are expected to be realized in future periods. This determination is based on facts and circumstances, including the Company's current and future tax outlook. To the extent a deferred tax asset is no longer considered "more likely than not" to be realized, a valuation allowance is established.

        Accrued income taxes represent the estimated amounts due or received from the various taxing jurisdictions where the Company has established a business presence. The balance also includes a contingent reserve for potential taxes, interest and penalties related to uncertain tax positions. On a quarterly basis, management evaluates the contingent tax accruals to determine if they are sufficient based on a probability assessment of potential outcomes. The determination is based on facts and circumstances, including the interpretation of existing law, new judicial or regulatory guidance and the status of tax audits. If a tax position which was previously recognized on the financial statements is no longer "more likely than not" to be sustained upon a challenge from the taxing authorities, the tax benefit from the tax position will be derecognized. The Company recognizes accrued interest and penalties relating to uncertain tax positions as an income tax provision expense.

Income Taxes

        The effective tax rate for 2008 was 31.1 percent, compared with 36.9 percent for 2007 and 36.4 percent for 2006. The effective tax rates differ from the applicable statutory federal and state tax rates due to various factors, including tax benefits from investments in affordable housing partnerships and tax-exempt income on municipal bonds and bank-owned life insurance. See Note 9 of the Notes to Consolidated Financial Statements on page A-35.

        The Internal Revenue Service has completed its audit of the Company's tax returns for the years 2002-2007 resulting in no material financial statement impact. The Company is currently being audited by the IRS for the year 2008 and by the Franchise Tax Board for the years 1998 through 2004. The potential financial statement impact, if any, resulting from the completion of the audits is not determinable at this time.

        From time to time, there may be differences in opinions with respect to the Company's tax treatment of certain transactions. A tax position which was previously recognized on the financial statements is not reversed unless it appears the benefits are no longer "more likely than not" to be sustained upon a challenge from the taxing authorities. The Company did not have any tax positions for which previously recognized benefits were reversed during the year ended December 31, 2008.

Income Taxes

        The Company and its subsidiaries file a consolidated federal income tax return and also file income tax returns in various state jurisdictions. The provision for income taxes includes current and deferred income tax expense on net income adjusted for permanent and temporary differences such as affordable housing tax credits and interest income on state and municipal securities. Deferred tax assets and liabilities are recognized for the expected future tax consequences of existing temporary differences between the financial reporting and tax reporting basis of assets and liabilities, as well as for operating losses and tax credit carry forwards, using enacted tax laws and rates. On a quarterly basis, management evaluates deferred tax assets to determine if these tax benefits are expected to be realized in future periods. This determination is based on facts and circumstances, including the Company's current and future tax outlook. To the extent a deferred tax asset is no longer considered "more likely than not" to be realized, a valuation allowance is established.

        Accrued income taxes represent the estimated amounts due or received from the various taxing jurisdictions where the Company has established a business presence. The balance also includes a contingent reserve for potential taxes, interest and penalties related to uncertain tax positions. On a quarterly basis, management evaluates the contingent tax accruals to determine if they are sufficiently reserved based on a probability assessment of potential outcomes. The determination is based on facts and circumstances, including the interpretation of existing law, new judicial or regulatory guidance and the status of tax audits. If a tax position which was previously recognized on the financial statements is no longer "more likely than not" to be sustained upon a challenge from the taxing authorities, the tax benefit from the tax position will be derecognized. The Company recognizes accrued interest and penalties relating to uncertain tax positions as an income tax provision expense.

        From time to time, the Company engages in business strategies that may also have an effect on its tax liabilities. If the tax effects of a strategy are significant, the Company's practice is to obtain the opinion of advisors that the tax effects of such strategies should prevail if challenged.

This excerpt taken from the CYN 10-Q filed Nov 7, 2008.

Income Taxes

 

The effective tax rate for the third quarter of 2008 was 25.2 percent, compared to 38.4 percent in the third quarter of last year.  The effective tax rate for the first nine months of 2008 was 33.8 percent compared to 37.4 percent for the same period in 2007. The lower effective tax rate for third-quarter 2008 is attributable to the fact that the Company’s beneficial permanent book to tax differences are stable from period to period and as a result, the favorable impact of these differences on the Company’s effective tax rate increases as pre-tax income decreases relative to these stable book to tax differences.

 

The Company recognizes accrued interest and penalties relating to unrecognized tax benefits as an income tax provision expense.  For the nine-month period ended September 30, 2008, the Company recognized approximately $1.3

 

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million in interest and penalties.  The Company had approximately $10.3 million and $8.9 million of accrued interest and penalties as of September 30, 2008 and December 31, 2007, respectively.

 

The Internal Revenue Service (“IRS”) has completed its audits of the Company for the years 2002 through 2005 resulting in no material financial statement impact.  The Company is currently being audited by the IRS for the years 2006-2007 and by the Franchise Tax Board for the years 1998-2004.   The potential financial statement impact, if any, resulting from the completion of the audits is not determinable at this time.

 

This excerpt taken from the CYN 10-Q filed Aug 8, 2008.

Income Taxes

 

The effective tax rate for the second quarter of 2008 was 35.6 percent, compared to 37.0 percent in the second quarter of last year.  The effective tax rate for the first six months of 2008 was 35.4 percent compared to 36.9 percent for the same period in 2007. The lower effective tax rate for second-quarter 2008 is attributable to a decrease in pretax income along with a disproportionate decrease in permanent tax benefits. The effective tax rates differ from the applicable statutory federal and state tax rates due to various factors, including  tax benefits from investments in affordable housing partnerships and tax-exempt income on municipal bonds and bank-owned life insurance.

 

The Company recognizes accrued interest and penalties relating to unrecognized tax benefits as an income tax provision expense.  For the six-month period ended June 30, 2008, the Company recognized approximately $261,000 in interest and penalties.  The Company had approximately $9.2 million and $8.9 million of accrued interest and penalties as of June 30, 2008 and December 31, 2007, respectively.

 

The  Internal Revenue Service (“IRS”) has completed its audits of the Company for the years 2002-2003 resulting in no material financial statement impact.  The Company is currently being audited by the IRS for the years 2006-2007 and by the Franchise Tax Board for the years 1998-2004.   The potential financial statement impact, if any, resulting from the completion of the audits is not determinable at this time.

 

This excerpt taken from the CYN 10-Q filed May 12, 2008.

Income Taxes

 

The first-quarter 2008 effective tax rate was 35.2 percent, compared with 36.8 percent in the first quarter of last year.  The lower effective tax rate for first-quarter 2008 is attributable to a one-time tax credit. The effective tax rates differ from the applicable statutory federal and state tax rates due to various factors, including  tax benefits from investments in affordable housing partnerships and tax-exempt income on municipal bonds and bank-owned life insurance.

 

The Company recognizes accrued interest and penalties relating to unrecognized tax benefits as an income tax provision expense.  For the period ended March 31, 2008, the Company recognized approximately $393,000 in interest and penalties.  The Company had approximately $9.3 million and $8.9 million of accrued interest and penalties as of March 31, 2008 and December 31, 2007, respectively.

 

The Company has completed its audits by the  Internal Revenue Service (“IRS”) for the years 2002-2003.  The Company is currently being audited by the IRS for the years 2006-2007 and by the Franchise Tax Board for the years 1998-2004.   The potential financial statement impact, if any, resulting from the completion of the audits is not determinable at this time.

 

These excerpts taken from the CYN 10-K filed Feb 29, 2008.

Note 8. Income Taxes

        Income taxes (benefits) in the consolidated statement of income include the following amounts:

Dollars in thousands

  Current
  Deferred
  Total
2007                  
  Federal   $ 103,372   $ (5,012 ) $ 98,360
  State     33,751     (1,451 )   32,300
   
 
 
    Total   $ 137,123   $ (6,463 ) $ 130,660
   
 
 
2006                  
  Federal   $ 101,138   $ (1,388 ) $ 99,750
  State     32,787     826     33,613
   
 
 
    Total   $ 133,925   $ (562 ) $ 133,363
   
 
 
2005                  
  Federal   $ 113,054   $ (7,037 ) $ 106,017
  State     34,334     1,470     35,804
   
 
 
    Total   $ 147,388   $ (5,567 ) $ 141,821
   
 
 

        Income taxes payable were $14.3 million, ($19.2 million) and $14.7 million as of December 31, 2007, December 31, 2006 and December 31, 2005, respectively.

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CITY NATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8. Income Taxes (Continued)

        The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 2007 and 2006 are presented below:

Note 8. Income Taxes



        Income taxes (benefits) in the consolidated statement of income include the following amounts:
































































































































































































































Dollars in thousands

 Current
 Deferred
 Total
2007         
 Federal $103,372 $(5,012)$98,360
 State  33,751  (1,451) 32,300
  
 
 
  Total $137,123 $(6,463)$130,660
  
 
 
2006         
 Federal $101,138 $(1,388)$99,750
 State  32,787  826  33,613
  
 
 
  Total $133,925 $(562)$133,363
  
 
 
2005         
 Federal $113,054 $(7,037)$106,017
 State  34,334  1,470  35,804
  
 
 
  Total $147,388 $(5,567)$141,821
  
 
 




        Income
taxes payable were $14.3 million, ($19.2 million) and $14.7 million as of December 31, 2007, December 31, 2006 and December 31, 2005,
respectively.



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CITY NATIONAL CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



Note 8. Income Taxes (Continued)



        The
tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 2007 and 2006 are presented
below:



This excerpt taken from the CYN 10-Q filed Nov 9, 2007.

Income Taxes

 

The third-quarter 2007 effective tax rate was 38.4 percent, compared with 36.5 percent in the third quarter of last year. The effective tax rates differ from the applicable statutory federal and state tax rates due to various factors, including state taxes, tax benefits from investments in affordable housing partnerships and tax-exempt income, including interest on bank-owned life insurance. The increase in the third-quarter effective tax rate is primarily due to additional tax expense related to the expected resolution of two pending Federal income tax matters, constituting a 0.8 percent increase in the effective tax rate. The Company expects a normalized tax rate of 37.6 percent for the remainder of the year.

 

The Company recognizes accrued interest and penalties relating to unrecognized tax benefits as an income tax provision expense. For the nine-month period ended September 30, 2007, the Company recognized approximately $0.9 million in interest and penalties. In conjunction with the adoption of FIN 48, the Company reduced accrued interest and penalties by $4.5 million during the nine-month period ended September 30, 2007. The Company had approximately $5.9 million and $9.4 million of accrued interest and penalties as of September 30, 2007 and December 31, 2006, respectively.

 

The Company is currently under examination by the Internal Revenue Service (“IRS”) for the tax years 2002 and 2003. The Company expects to begin IRS appeals proceedings related to certain tax positions taken in these years. The potential financial statement impact of these items range from a tax benefit of $3.9 million to a tax expense of $6.7 million.

 

The Company is also under examination by the Franchise Tax Board for the tax years 1998 through 2004. The Company expects the Franchise Tax Board to complete its examination for the years 1998 though 2003 within the next 12 months. The potential financial statement impact resulting from the completion of the audit is not determinable at this time.

 

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This excerpt taken from the CYN 10-Q filed Aug 9, 2007.

Income Taxes

The second-quarter 2007 effective tax rate was 37.0 percent, compared with 37.5 percent in the second quarter of last year.  The effective tax rates differ from the applicable statutory federal and state tax rates due to various factors, including state taxes, tax benefits from investments in affordable housing partnerships and tax-exempt income, including interest on bank-owned life insurance.

The Company recognizes accrued interest and penalties relating to unrecognized tax benefits as an income tax provision expense.  For the period ended June 30, 2007, the Company recognized approximately $186,000 in interest and penalties.  The Company had approximately $9.4 million and $6.6 million of accrued interest and penalties as of June 30, 2007 and December 31, 2006, respectively.

The Company is currently under examination by the Internal Revenue Service (“IRS”) for the tax years 2002 and 2003.  The Company expects to begin IRS appeals proceedings related to certain tax positions taken in these years.  The potential financial statement impact of these items range from a tax benefit of $3.6 million to a tax expense of $6.8 million.

The Company is also under examination by the Franchise Tax Board for the tax years 1998 through 2004.  The Company expects the Franchise Tax Board to complete its examination for the years 1998 though 2003 within the next 12 months.  The potential financial statement impact resulting from the completion of the audit is not determinable at this time.

This excerpt taken from the CYN 10-Q filed May 10, 2007.

Income Taxes

The first-quarter 2007 effective tax rate was 36.8 percent, compared with 37.8 percent in the first quarter of last year.  The lower rate is a result of changes in estimates and a true-up of prior year tax adjustments.  The effective tax rates differ from the applicable statutory federal and state tax rates due to various factors, including state taxes, tax benefits from investments in affordable housing partnerships and tax-exempt income, including interest on bank-owned life insurance.

The Company recognizes accrued interest and penalties relating to unrecognized tax benefits as an income tax provision expense.  For the period ended March 31, 2007, the Company recognized approximately $372,000 in interest and penalties.  The Company had approximately $9.8 million and $6.6 million of accrued interest and penalties as of March 31, 2007 and December 31, 2006, respectively.

The Company is currently under examination by the Internal Revenue Service (“IRS”) for the tax years 2002 and 2003.  The Company expects to begin IRS appeals proceedings related to certain tax positions taken in these years.  The potential financial statement impact of these items range from a tax benefit of $3.6 million to a tax expense of $6.8 million.

The Company is also under examination by the Franchise Tax Board for the tax years 1998 through 2004.  The Company expects to complete its Franchise Tax Board examination for the years 1998 though 2003 within the next 12 months.  The potential financial statement impact resulting from the completion of the audit is not determinable at this time.

This excerpt taken from the CYN 10-K filed Mar 1, 2007.

Income Taxes

The Company files a consolidated federal income tax return and a combined state income tax return. Deferred tax assets and liabilities are recognized for the expected future tax consequences of existing differences between the financial reporting and tax reporting basis of assets and liabilities, as well as for operating losses and tax credit carry forwards, using enacted tax laws and rates. Deferred tax assets will be reduced through a valuation allowance whenever it becomes more likely than not that all, or some portion of the deferred tax asset, will not be realized. A deferred income tax (benefit) represents the net change in the deferred tax asset or liability balance during the year. This amount, together with income taxes currently payable or refundable in the current year, represents the total income taxes (benefit) for the year.

From time to time, the Company engages in business strategies that may also have an effect on its tax liabilities. If the tax effects of a strategy are significant, the Company’s practice is to obtain the opinion of advisors that the tax effects of such strategies should prevail if challenged.

A-11




CITY NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Summary of Significant Accounting Policies (Continued)

This excerpt taken from the CYN 10-Q filed Aug 8, 2006.

Income Taxes

 

The second-quarter 2006 effective tax rate was 37.5 percent, compared with 37.3 percent in the second quarter of last year. The effective tax rates differ from the applicable statutory federal and state tax rates due to various factors, including tax-exempt income, interest on bank-owned life insurance, and affordable housing investments.

 

The Company’s tax returns are being audited by the Internal Revenue Service for the years 2002-2003, and by the California Franchise Tax Board for the years 1998-2004. From time to time, there may be differences in opinions with respect to the tax treatment accorded transactions. If a tax position which was previously recognized on the financial statements is no longer “more likely than not” to be sustained upon a challenge from the taxing authorities, the tax benefit from the tax position will be derecognized. As of June 30, 2006, the Company does not have any tax positions which dropped below a “more likely than not” threshold.

 

As previously reported the California Franchise Tax Board has taken the position that certain real estate investment trust (‘REIT’) and registered investment company (‘RIC’) tax deductions should be disallowed under California law. While management continues to believe that the tax benefits realized in previous years are appropriate, the Company deemed it prudent to participate in the statutory Voluntary Compliance Initiative–Option 2, requiring payment of all California taxes and interest on potential tax exposures from the 2000- 2002 tax years. The Company may then claim a refund for the taxes paid while avoiding potential penalties. The Company has elected to proceed with its claim for refund as allowed by law. As of June 30, 2006, the Company had a $43.1 million state tax receivable for the years 2000, 2001 and 2002 after giving effect to reserves for loss contingencies on the refund claims, or an equivalent of $28.1 million after giving effect to Federal tax benefits. Although management is aggressively pursuing its claims for REIT and RIC refunds for the 2000 to 2004 tax years, no outcome can be predicted with certainty and an adverse outcome on the refund claims could result in a loss of all or a portion of the net $28.1 million state tax receivable.

 

This excerpt taken from the CYN 10-Q filed May 10, 2006.

Income Taxes

 

The first-quarter 2006 effective tax rate was 37.8 percent, compared with 37.7 percent for all of 2005.  The effective tax rates differ from the applicable statutory federal and state tax rates due to various factors, including tax-exempt income, interest on bank-owned life insurance, and affordable housing investments.

 

The Company’s tax returns are being audited by the Internal Revenue Service for the years 2002-2003, and by the California Franchise Tax Board for the years 1998-2003.  From time to time, there may be differences in opinions with respect to the tax treatment accorded transactions.   If a tax position which was previously recognized on the financial statements is no longer “more likely than not” to be sustained upon a challenge from the taxing authorities, the tax benefit from the tax position will be derecognized.  As of March 31, 2006, the Company does not have any tax positions which dropped below a “more likely than not” threshold.

 

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As previously reported the California Franchise Tax Board has taken the position that certain real estate investment trust (‘REIT’) and registered investment company (‘RIC’) tax deductions should be disallowed under California law.  While management continues to believe that the tax benefits realized in previous years are appropriate, the Company deemed it prudent to participate in the statutory Voluntary Compliance Initiative–Option 2, requiring payment of all California taxes and interest on potential tax exposures from the 2000- 2002 tax years.  The Company may then claim a refund for the taxes paid while avoiding potential penalties.  The Company has elected to proceed with its claim for refund as allowed by law.  As of March 31, 2006, the Company had a $43.1 million state tax receivable for the years 2000, 2001 and 2002 after giving effect to reserves for loss contingencies on the refund claims, or an equivalent of $28.1 million after giving effect to Federal tax benefits.  Although management is aggressively pursuing its claims for REIT and RIC refunds for the 2000 to 2002 tax years, no outcome can be predicted with certainty and an adverse outcome on the refund claims could result in a loss of all or a portion of the net $28.1 million state tax receivable.

 

This excerpt taken from the CYN 10-K filed Mar 15, 2006.

Income Taxes

The Company files a consolidated federal income tax return and a combined state income tax return. Deferred tax assets and liabilities are recognized for the expected future tax consequences of existing differences between the financial reporting and tax reporting basis of assets and liabilities, as well as for operating losses and tax credit carry forwards, using enacted tax laws and rates. Deferred tax assets will be reduced through a valuation allowance whenever it becomes more likely than not that all, or some portion of the deferred tax asset, will not be realized. A deferred income tax (benefit) represents the net change in the deferred tax asset or liability balance during the year. This amount, together with income taxes currently payable or refundable in the current year, represents the total income taxes (benefit) for the year.

From time to time, the Company engages in business strategies that may also have an effect on its tax liabilities. If the tax effects of a strategy are significant, the Company’s practice is to obtain the opinion of advisors that the tax effects of such strategies should prevail if challenged.

This excerpt taken from the CYN 10-Q filed Nov 8, 2005.

Income Taxes

The third-quarter 2005 effective tax rate was 38.5 percent, compared with 37.4 percent for all of 2004. This higher tax rate was due to the company’s decision to restructure one of its investments. The company expects its tax rate for the fourth quarter to be about 37.5 percent. The effective tax rates differ from the applicable statutory federal tax rate due to various factors, including state taxes, tax-exempt income, including interest on bank-owned life insurance, and affordable housing investments.

The Company’s tax returns are being audited by the Internal Revenue Service back to 1998 and by the Franchise Tax Board of the State of California back to 1996. From time to time, there may be differences in opinions with respect to the tax treatment accorded transactions. If it becomes probable that a tax position originally taken to support amounts reported on the financial statements will not be sustained upon a challenge from a tax authority and the tax effect of this difference is reasonably estimable, such amounts will be recognized.

As we previously reported, the California Franchise Tax Board has taken the position that certain real estate investment trust (‘REIT’) and registered investment company (‘RIC’) tax deductions shall be disallowed under California law. While management continues to believe that the tax benefits realized in previous years were appropriate, the Company deemed it prudent to participate in the statutory Voluntary Compliance Initiative—Option 2, requiring payment of all California taxes and interest on the disputed 2000-through- 2002 tax years, and permitting the Company to claim a refund for these years while avoiding certain potential penalties. The Company has elected to proceed with its claim for refund as allowed by

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law. As of September 30, 2005, the Company maintains a $43.2 million state tax receivable for the years 2000, 2001 and 2002 after giving effect to reserves for loss contingencies on the refund claims, or an equivalent of $28.1 million after giving effect to Federal tax benefits. Although management is aggressively pursuing its claims for REIT and RIC refunds for the 2000 to 2002 tax years, no outcome can be predicted with certainty and an adverse outcome on the refund claims could result in a loss of all or a portion of the net $28.1 million state tax receivable.

This excerpt taken from the CYN 10-Q filed Aug 8, 2005.

Income Taxes

The second-quarter 2005 effective tax rate was 37.3 percent, compared with 37.4 percent for all of 2004. The effective tax rates differ from the applicable statutory federal tax rate due to various factors, including state taxes, tax-exempt income including interest on bank-owned life insurance, and affordable housing investments.

The Company’s tax returns are being audited by the Internal Revenue Service back to 1998 and by the Franchise Tax Board of the State of California back to 1996. From time to time, there may be differences in opinions with respect to the tax treatment accorded transactions. If it becomes probable that a tax position originally taken to support amounts reported on the financial statements will not be sustained upon a challenge from a tax authority and the tax effect of this difference is reasonably estimable, such amounts will be recognized.

As we previously reported, the California Franchise Tax Board has taken the position that certain real estate investment trust (‘REIT’) and registered investment company (‘RIC’) tax deductions shall be disallowed under California law. While management continues to believe that the tax benefits realized in previous years were appropriate, the Company deemed it prudent to participate in the statutory Voluntary Compliance Initiative—Option 2, requiring payment of all California taxes and interest on the disputed 2000-through- 2002 tax years, and permitting the Company to claim a refund for these years while avoiding certain potential penalties. The Company has elected to proceed with its claim for refund as allowed by law. The Company’s strategic and financial positions remain unchanged from the previously reported periods. As of June 30, 2005, the Company continues to reflect a $36.4 million state tax receivable for the years 2000, 2001 and 2002 after giving effect to reserves for loss contingencies on the refund claims, or an equivalent of $23.7 million after giving effect to Federal tax benefits. Although management is aggressively pursuing its claims for REIT and RIC refunds for the 2000 to 2002 tax years, no outcome can be predicted with certainty and an adverse outcome on the refund claims could result in a loss of all or a portion of the net $23.7 million state tax receivable.

This excerpt taken from the CYN 10-Q filed May 9, 2005.

Income Taxes

The first-quarter 2005 effective tax rate was 37.3 percent, compared with 37.4 percent for all of 2004. The effective tax rates differ from the applicable statutory federal tax rate due to various factors, including state taxes, tax-exempt income including interest on bank-owned life insurance, and affordable housing investments.

The Company’s tax returns are being audited by the Internal Revenue Service back to 1998 and by the Franchise Tax Board of the State of California back to 1996. From time to time, there may be differences in opinions with respect to the tax treatment accorded transactions. If it becomes probable that a tax position originally taken to support amounts reported on the financial statements will not be sustained upon a challenge from a tax authority and the tax effect of this difference is reasonably estimable, such amounts will be recognized.

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As we previously reported, the California Franchise Tax Board has taken the position that certain real estate investment trust (‘REIT’) and registered investment company (‘RIC’) tax deductions shall be disallowed under California law. While management continues to believe that the tax benefits realized in previous years were appropriate, the company deemed it prudent to participate in the statutory Voluntary Compliance Initiative—Option 2, requiring payment of all California taxes and interest on the disputed 2000-through- 2002 tax years, and permitting the company to claim a refund for these years while avoiding certain potential penalties. The company’s strategic and financial positions remain unchanged from the previously reported periods. As of March 31, 2005, the Company continues to reflect a net $36.4 million state tax receivable for the years 2000, 2001 and 2002 after giving effect to reserves for loss contingencies on the refund claims, or an equivalent of $23.7 million after giving effect to Federal tax benefits. Although management intends to aggressively pursue its claims for REIT and RIC refunds for the 2000 to 2002 tax years, no outcome can be predicted with certainty and an adverse outcome on the refund claims could result in a loss of all or a portion of the net $23.7 million state tax receivable.

Income Taxes

The Corporation files a consolidated federal income tax return and a combined state income tax return. Deferred tax assets and liabilities are recognized for the expected future tax consequences of existing differences between the financial reporting and tax reporting basis of assets and liabilities, as well

A-48




CITY NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 1. Summary of Significant Accounting Policies (Continued)

as for operating losses and tax credit carry forwards, using enacted tax laws and rates. Deferred tax assets will be reduced through a valuation allowance whenever it becomes more likely than not that all, or some portion of the deferred tax asset, will not be realized. Deferred income taxes (benefit) represents the net change in the deferred tax asset or liability balance during the year. This amount, together with income taxes currently payable or refundable in the current year, represents the total income taxes (benefit) for the year.

From time to time, the Company engages in business strategies that may also have an effect on its tax liabilities. If the tax effects of a strategy are significant, the Company’s practice is to obtain the opinion of advisors that the tax effects of such strategies should prevail if challenged.

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