Income Taxes (Tables)

12 Months Ended

Dec. 31, 2014

The following are the major jurisdictions in which Ambac and its affiliates operate and the earliest tax years subject to examination:



Jurisdiction	Tax Year
United States	2010
New York State	2010
New York City	2011
United Kingdom	2009
Italy	2009

Significant Portions of Deferred Tax Liabilities and Deferred Tax Assets

The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities and deferred tax assets at December 31, 2014 and 2013 are presented below:



	December 31,
	2014			2013
Deferred tax liabilities:
Insurance intangible	$	493,822		$	559,288
Variable interest entities	14,149			131,137
Investments	138,072			168,653
Unearned premiums and credit fees	104,589			38,826
Other	33,835			2,221
Total deferred tax liabilities	784,467			900,125
Deferred tax assets:
Net operating loss and capital carryforward	1,890,551			2,177,029
Loss reserves	185,881			634,692
Compensation	5,276			8,724
AMT Credits	10,359			4,269
Other	9,539			58,581
Sub total deferred tax assets	2,101,606			2,883,295
Valuation allowance	1,319,218			1,985,369
Total deferred tax assets	782,388			897,926
Net deferred tax asset (liability)	$	(2,079	)	$	(2,199	)

Schedule of Components of Income Tax Expense (Benefit)

Ambac’s provision for income taxes charged to income from continuing operations is comprised of the following:



	Successor Ambac				Predecessor Ambac
			Period from May 1		Period from January 1
	Year Ended		through		through			Year Ended
	December 31, 2014		December 31, 2013		April 30, 2013			December 31, 2012
Current taxes	$	9,463	$	6,984	$	761		$	1,263
Deferred taxes	94		530		(6		)	1,586
Total	$	9,557	$	7,514	$	755		$	2,849

Schedule Of Income Taxes Charged Credited Directly To Equity

The total effect of income taxes on net income and stockholders’ equity for the years ended December 31, 2014 and 2013 is as follows:



	Successor Ambac						Predecessor Ambac
				Period from May 1			Period from January 1
	Year Ended			through			through			Year Ended
	December 31, 2014			December 31, 2013			April 30, 2013			December 31, 2012
Total income taxes charged to net income	$	9,557		$	7,514		$	755		$	2,849
Income taxes charged (credited) to stockholders’ equity:
Unrealized gains (losses) on investment securities	73,306			284			(204,145		)	18,448
Valuation allowance to equity	(73,306		)	(284		)	204,145			(18,448		)
Total charged to stockholders’ equity:	—			—			—			—
Total effect of income taxes	$	9,557		$	7,514		$	755		$	2,849

Schedule of Effective Income Tax Rate Reconciliation

The tax provisions in the accompanying Consolidated Statements of Total Comprehensive Loss reflect effective tax rates differing from prevailing Federal corporate income tax rates. The following is a reconciliation of these differences:



	Successor Ambac								Predecessor Ambac
					Period from May 1				Period from January 1
	Year Ended				through				through				Year Ended
	December 31, 2014				December 31, 2013				April 30, 2013				December 31, 2012
	$		%		$		%		$		%		$		%
Tax on income from continuing operations at statutory rate	172,639		35.0	%	179,311		35.0	%	1,171,812		35.0	%	(89,777	)	35.0	%
Changes in expected tax resulting from:
Reorganization income	—		—	%	—		—	%	(712,581	)	(21.3	)%	—		—	%
Tax bankruptcy adjustments	—		—	%	—		—	%	285,734		8.5	%	—		—	%
IRS Settlement	—		—	%	—		—	%	370,996		11.1	%	—		—	%
Tax-exempt interest	(6,811	)	(1.4	)%	(11,988	)	(2.3	)%	(4,996	)	(0.1	)%	(17,795	)	6.9	%
Valuation allowance	(159,661	)	(32.4	)%	(160,064	)	(31.2	)%	(1,110,230	)	(33.2	)%	107,502		(41.9	)%
Foreign taxes	3,472		0.7	%	—		—	%	—		—	%	—		—	%
Other, net	(82	)	—	%	255		—	%	20		—	%	2,919		(1.1	)%
Tax expense on income from continuing operations	9,557		1.9	%	7,514		1.5	%	755		—	%	2,849		(1.1	)%

Schedule of Unrecognized Tax Benefits Roll Forward

A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2014 and 2013 is as follows:



	Successor Ambac		Predecessor Ambac
		Period from May 1	Period from January 1
	Year Ended	through	through		Year Ended
	December 31, 2014	December 31, 2013	April 30, 2013		December 31, 2012
Balance at January 1,	—	—	96,900		96,900
Increases related to prior year tax positions	—	—	—		—
Decreases related to prior year tax positions⁽¹⁾	—	—	(96,900	)	—
Balance at December 31,	—	—	—		96,900


(1)	Amount paid in connection with IRS settlement as noted above.

Schedule of Net Operating Loss And Tax Credit Carryovers

Pursuant to the Amended TSA, to the extent Ambac Assurance generates taxable income after September 30, 2011, which is offset with NOLs (or the proportionate amount of AMT NOL (as defined below)), it is obligated to make payments (“Tolling Payments”), subject to certain credits, to Ambac in accordance with the following NOL usage table, where the “Applicable Percentage” is applied to the aggregate amount of federal income tax liability that would have been paid if the “Allocated NOLs” were not available:

NOL Usage Table



NOL Usage Tier	Allocated NOLs⁽¹⁾			Applicable Percentage
A	The first	$479,000		15%
B	The next	$1,057,000	after Tier A	40%
C	The next	$1,057,000	after Tier B	10%
D	The next	$1,057,000	after Tier C	15%


(1)	A credit is available to offset the first $5 million payment due under each of the NOL usage Tiers A, B and C.