NOTE 16 – INCOME TAXES

Total income taxes are allocated as follows:

	Year ended September 30,
	2011		2010			2009
	(in thousands)
Recorded in:
Income including noncontrolling interests	$	182,894	$	133,625		$	96,024
Equity, for compensation expense for tax purposes in excess of (less than) amounts recognized for financial reporting purposes		374		(2,280	)		(3,210	)
Equity, for available for sale securities		1,497		17,020			(2,963	)
Total	$	184,765	$	148,365		$	89,851

Our provision (benefit) for income taxes consists of the following:

	Year ended September 30,
	2011			2010			2009
	(in thousands)
Current:
Federal	$	148,266		$	140,482		$	125,557
State and local		29,387			15,592			13,264
Foreign		11,249			3,380			1,875
		188,902			159,454			140,696
Deferred:
Federal		(6,279	)		(23,190	)		(39,266	)
State and local		(3,887	)		(2,778	)		(4,538	)
Foreign		4,158			139			(868	)
		(6,008	)		(25,829	)		(44,672	)
Total provision for income taxes	$	182,894		$	133,625		$	96,024

Our income tax expense differs from the amount computed by applying the statutory federal income tax rate of 35% due to the following:

	Year ended September 30,
	2011		2010			2009
	(in thousands)

Provision calculated at statutory rates	$	161,436	$	126,667		$	87,071
State income taxes, net of federal benefit		16,575		8,329			5,672
Other, net		4,883		(1,371	)		3,281
Total provision for income tax	$	182,894	$	133,625		$	96,024

U.S. and foreign components of income excluding noncontrolling interests and before provision for income taxes are as follows:

	Year ended September 30,
	2011		2010		2009
	(in thousands)

U.S.	$	421,662	$	356,067	$	256,659
Foreign		39,585		5,841		(7,885	)
Income excluding noncontrolling interest and before provision for income taxes	$	461,247	$	361,908	$	248,774

The cumulative effects of temporary differences that give rise to significant portions of the deferred tax asset (liability) items are as follows:

	September 30,
	2011			2010
	(in thousands)
Deferred tax assets:
Deferred compensation	$	79,192		$	70,445
Allowances for loan losses and reserves for unfunded commitments		63,061			62,562
Interest on nonaccrual loans		366			228
Unrealized loss		26,381			30,460
Accrued expenses		16,018			15,100
Capitalized expenditures		344			3,747
Net operating loss and credit carryforwards		4,126			3,075
Other		23,919			16,087
Total gross deferred tax assets		213,407			201,704
Less: valuation allowance		(2,536	)		(3,075	)
Total deferred tax assets		210,871			198,629
Deferred tax liabilities:
Aircraft lease		(5,716	)		(6,793	)
Undistributed earnings of foreign subsidiaries		(16,517	)		(16,143	)
Other		(16,727	)		(10,485	)
Total deferred tax liabilities		(38,960	)		(33,421	)
Net deferred tax assets	$	171,911		$	165,208

We have a net deferred tax asset at September 30, 2011 and September 30, 2010. This asset includes net operating loss and foreign tax credit carryforwards that will expire between 2012 and 2029. A valuation allowance for the fiscal year ended September 30, 2011 has been established for certain state net operating losses and foreign tax credit carryforwards due to management's belief that, based on our historical operating income, projection of future taxable income, scheduled reversal of taxable temporary differences, and implemented tax planning strategies, it is more likely than not that the tax carryforwards will expire unutilized. We believe that the realization of the remaining net deferred tax asset of $171.9 million is more likely than not based on the ability to carry back losses against prior year taxable income and expectations of future taxable income.

We have provided for U.S. deferred income taxes in the amount of $16.5 million on undistributed earnings not considered permanently reinvested in our non-U.S. subsidiaries. To the extent that the cumulative undistributed earnings of non-U.S. subsidiaries are considered to be permanently invested, no deferred U.S. federal income taxes have been provided. As of September 30, 2011, we have approximately $118.5 million of cumulative undistributed earnings attributable to foreign subsidiaries for which no provisions have been recorded for income taxes that could arise upon repatriation. It is not practicable to determine the amount of income taxes that would be payable in the event all such foreign earnings are repatriated.

The current tax receivable, included in other receivables, is $14.9 million and $10.9 million as of September 30, 2011 and 2010, respectively.

Liabilities associated with unrecognized tax benefits

We recognize the accrual of interest and penalties related to income tax matters in interest expense and other expense, respectively. During the year ended September 30, 2011, accrued interest expense related to unrecognized tax benefits decreased by approximately $56,000. During the year ended September 30, 2011, penalty expense related to unrecognized tax benefits increased by approximately $20,000. Interest and penalties accrued as of September 30, 2011 and September 30, 2010 are $1.3 million and $1.4 million, respectively.

The aggregate changes in the liability for unrecognized tax benefits including interest and penalties are as follows:

	Year ended September 30,
	2011			2010			2009
	(in thousands)

Liability for unrecognized tax benefits at beginning of fiscal year	$	4,308		$	4,565		$	4,862
Increases for tax positions related to the current year		1,199			1,108			779
Increases for tax positions related to prior years		551			353			219
Decreases for tax positions related to prior years		(44	)		(70	)		(114	)
Decreases due to lapsed statute of limitations		(1,284	)		(1,433	)		(1,037	)
Decreases related to settlements		-			(215	)		(144	)
Liability for unrecognized tax benefits at end of fiscal year	$	4,730		$	4,308		$	4,565

At September 30, 2011 and 2010, our liability for unrecognized tax benefits is $4.7 million and $4.3 million, respectively. At September 30, 2011, the total amount of unrecognized tax benefit net of the associated deferred tax benefit that, if recognized, would favorably affect the effective tax rate is $3.8 million. We anticipate that the unrecognized tax benefits will not change significantly over the next twelve months.

We file U. S. federal income tax returns as well as returns with various state, local and foreign jurisdictions. With few exceptions, we are generally no longer subject to U.S. federal, state and local, or foreign income tax examination by tax authorities for years prior to fiscal year 2011 for federal tax returns, fiscal year 2007 for state and local tax returns and fiscal year 2006 for foreign tax returns. Certain transactions occurring in fiscal year 2011 are currently being examined under the Internal Revenue Service (“IRS”) Compliance Assurance Program. This program accelerates the examination of key issues in an attempt to resolve them before the tax return is filed. Certain state and local returns are also currently under various stages of audit. The fiscal year 2011 IRS audit and state audits in process are expected to be completed in fiscal year 2012.