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Income Taxes (Tables) | 12 Months Ended
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Dec. 31, 2012
Major 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 |  |  | 2005 |
New York State |  |  | 2008 |
New York City |  |  | 2011 |
United Kingdom |  |  | 2006 |
Italy |  |  | 2007 |
Provision for Income Taxes Charged to Income from Continuing Operations | Ambac’s provision for income taxes charged to income from continuing operations is comprised of the following:
|  | 2012 |  |  | 2011 |
Current taxes |  | $ | 1,263 |  |  | $ | 77,422 |
Deferred taxes |  |  | 1,586 |  |  |  | — |
|  | $ | 2,849 |  |  | $ | 77,422 |
Effect of Income Taxes on Net Income and Stockholders' Equity | The total effect of income taxes on net income and stockholders’ equity for the years ended December 31, 2012 and 2011 is as follows:
|  | 2012 |  |  | 2011 |
Total income taxes charged to net income |  | $ | 2,849 |  |  | $ | 77,422 |
Income taxes charged (credited) to stockholders’ equity: |  |  |  |  |  |  |  |
Unrealized gains (losses) on investment securities |  |  | 18,448 |  |  |  | 58,597 |
Valuation Allowance to Equity |  |  | (18,448 | ) |  |  | (58,597 | )
Other |  |  | — |  |  |  | — |
Total charged to stockholders’ equity: |  |  | — |  |  |  | — |
Total effect of income taxes |  | $ | 2,849 |  |  | $ | 77,422 |
Effective Tax Rates Differing from Prevailing Federal Corporate Income Tax Rates | 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:
|  | 2012 |  |  | % |  |  | 2011 |  |  | % |
Tax on income from continuing operations at statutory rate |  | ($ | 89,777 | ) |  |  | 35.0 | % |  | ($ | 659,032 | ) |  |  | 35.0 | %
Reductions in expected tax resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tax-exempt interest |  |  | (17,795 | ) |  |  | 6.9 | % |  |  | (19,872 | ) |  |  | 1.1 | %
Valuation allowance |  |  | 107,502 |  |  |  | (41.9 | )% |  |  | 685,787 |  |  |  | (36.4 | )%
Net addition to (release of) tax reserves |  |  | — |  |  |  | — | % |  |  | 73,850 |  |  |  | (3.9 | )%
Other, net |  |  | 2,919 |  |  |  | (1.1 | )% |  |  | (3,311 | ) |  |  | 0.2 | %
Tax expense on income from continuing operations |  | $ | 2,849 |  |  |  | (1.1 | )% |  | $ | 77,422 |  |  |  | (4.1 | )%
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, 2012 and 2011 are presented below:
|  | 2012 |  |  | 2011 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Variable interest entities |  | $ | 22,015 |  |  | $ | 28,773 |
Deferred acquisition costs |  |  | 57,262 |  |  |  | 65,238 |
Unearned premiums and credit fees |  |  | 54,539 |  |  |  | 41,342 |
Other |  |  | 17,251 |  |  |  | 22,481 |
Total deferred tax liabilities |  |  | 151,067 |  |  |  | 157,834 |
Deferred tax assets: |  |  |  |  |  |  |  |
Unrealized losses & impairments on investments |  |  | 12,605 |  |  |  | 47,919 |
Net operating loss and capital carryforward |  |  | 2,857,926 |  |  |  | 2,751,802 |
Loss reserves |  |  | 522,502 |  |  |  | 514,150 |
Compensation |  |  | 7,184 |  |  |  | 6,693 |
Other |  |  | 5,687 |  |  |  | 6,672 |
Sub-total deferred tax assets |  |  | 3,405,904 |  |  |  | 3,327,236 |
Valuation allowance |  |  | 3,256,423 |  |  |  | 3,169,402 |
Total deferred tax assets |  |  | 149,481 |  |  |  | 157,384 |
Net deferred tax liability |  | $ | (1,586 | ) |  | $ | — |
Reconciliation of Unrecognized Tax Benefits | A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2012 and 2011 is as follows:
|  | 2012 |  |  | 2011 |
Balance at January 1, |  | $ | 96,900 |  |  | $ | 23,050 |
Increases related to prior year tax positions |  |  | — |  |  |  | 73,850 |
Decreases related to prior year tax positions |  |  | — |  |  |  | — |
Balance at December 31, |  | $ | 96,900 |  |  | $ | 96,900 |

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