10. 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		2008
New York City		2011
United Kingdom		2006
Italy		2007

On February 24, 2012, Ambac, the Creditors’ Committee, Ambac Assurance, the Segregated Account, OCI, and the Rehabilitator submitted to the United States Internal Revenue Service (“IRS”) and the Department of Justice a proposal to settle Ambac’s dispute with the IRS and related proceedings which included the following terms: (i) a payment by Ambac Assurance and/or the Segregated Account of $100,000; (ii) a payment by Ambac of $1,900; (iii) Ambac Consolidated Group relinquished its claim to all loss carry-forwards resulting from losses on credit default swap contracts and arising on or before December 31, 2010 to the extent such loss carry-forwards exceed $3,400,000; and (iv) paying the IRS 12.5% and 17.5% of certain payments to Ambac by Ambac Assurance under the Amended TSA. On April 30, 2013, the parties concluded the settlement on such terms (the “IRS Settlement”).

As a result of the development of additional losses and the related impact on the Company’s cash flows, management believes it is more likely than not that the Company will not generate sufficient taxable income to recover the deferred tax operating asset. As of March 31, 2013, the company had a valuation allowance of $3,134,054.

As of March 31, 2013 Ambac has an ordinary U. S. federal net operating tax carryforward of approximately $7,107,171, which if not utilized, will begin expiring in 2029 and will fully expire in 2034. As disclosed above, as part of the IRS Settlement, Ambac has relinquished its claim to all net operating loss carry-forwards resulting from losses on credit default swap contracts arising on or before December 31, 2010 to the extent such net operating loss carry-forwards exceed $3,400,000. The exact amount of the loss carry-forward relinquishment is $1,059,988.

Upon emergence from bankcruptcy, approximately $816,380 of the NOL will be reduced for cancellation of indebtedness income and reduction of interest expense pursuant to IRC Section 382 (l)(5).