INCOME TAXES

Ambac files a consolidated Federal income tax return with its subsidiaries. Ambac and its subsidiaries also file separate or combined income tax returns in various states, local and foreign jurisdictions. 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	2011
New York City	2011
United Kingdom	2009
Italy	2009

As of March 31, 2015 Ambac had loss carryforwards totaling $5,225,954. This includes carryforwards of $133,626 relating to U.S. capital losses, $182,059 of Ambac UK loss carryforwards, and an ordinary U. S. federal net operating tax carryforward of approximately $4,910,269, which, if not utilized, will begin expiring in 2029, and will fully expire in 2034.

The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities and deferred tax assets at March 31, 2015 and December 31, 2014 are presented below:



	March 31, 2015			December 31, 2014
Deferred tax liabilities:
Insurance intangible	$	471,553		$	493,822
Variable interest entities	11,611			14,149
Investments	141,208			138,072
Unearned premiums and credit fees	101,647			104,589
Other	33,763			33,835
Total deferred tax liabilities	759,782			784,467
Deferred tax assets:
Net operating loss and capital carryforward	1,829,084			1,890,551
Loss reserves	146,429			185,881
Compensation	5,469			5,276
AMT Credits	11,899			10,359
Other	9,539			9,539
Sub total deferred tax assets	2,002,420			2,101,606
Valuation allowance	1,244,543			1,319,218
Total deferred tax assets	757,877			782,388
Net deferred tax asset (liability)	(1,905		)	(2,079		)

In accordance with the Income Tax Topic of the ASC, a valuation allowance is recognized if, based on the weight of available evidence, it is more-likely-than-not that some, or all, of the deferred tax asset will not be realized. As a result of the risks and uncertainties associated with future operating results, management believes it is more likely than not that the Company will not generate sufficient taxable income to recover the deferred tax operating asset and therefore has a full valuation allowance.