Income Taxes (Tables)

12 Months Ended

Dec. 31, 2012

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