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Income Taxes | 12 Months Ended
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Dec. 31, 2013
Income Tax Disclosure [Abstract] |
Income Taxes | 16. 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 |
As of December 31, 2013 Ambac had loss carryforwards totaling $6,220,353. This includes carryforwards of $605,441 relating to U.S. capital losses, $297,919 of Ambac UK loss carryforwards, and an ordinary U. S. federal net operating tax carryforward of approximately $5,316,993, which, if not utilized, will begin expiring in 2029, and will fully expire in 2034. On April 3, 2013, Ambac, the Creditors’ Committee, Ambac Assurance, the Segregated Account, OCI and the Rehabilitator submitted to the IRS and the Department of Justice, Tax Division, a letter which modified and supplemented the terms of the Offer Letter to settle a dispute with the IRS and related proceedings. On April 4, 2013, the Department of Justice, Tax Division, accepted the Offer Letter as supplemented and modified (the “IRS Settlement”). On April 8, 2013, Ambac filed a motion with the Bankruptcy Court seeking approval of the terms of the IRS Settlement. On April 29, 2013, the Bankruptcy Court approved in all respects the IRS Settlement, which settled the IRS claim, and authorized and directed Ambac, in part, to effectuate the IRS Settlement and to take any other actions as may be reasonably necessary to consummate the settlement, including, without limitation, the execution of a closing agreement with the IRS, and entry of a stipulation dismissing the IRS adversary proceeding with prejudice. On April 30, 2013, Ambac paid to the United States Department of the Treasury $1,900 and the Segregated Account paid the United States Department of Treasury $100,000. Upon confirmation of payment, Ambac and the Internal Revenue Service entered into a closing agreement on April 30, 2013 which resolved with finality all federal income tax liability of Ambac for the 2003 through 2009 tax years and resolved with finality the federal income tax liability of Ambac for the 2010 tax year solely with respect to items of income, gain, deductions or loss related to the CDS contracts. Ambac 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 carryforward relinquishment was $1,059,988. The closing agreement does not resolve the tax treatment of CDS contracts for tax years subsequent to 2010. Upon emergence from bankruptcy, approximately $816,380 of the Net Operating Loss (“NOL”) was reduced for cancellation of indebtedness income and reduction of interest expense pursuant to IRC Section 382(l)(5). The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities and deferred tax assets at December 31, 2013 and December 31, 2012 are presented below:
|  | Successor Ambac – December 31, 2013 |  |  | Predecessor Ambac – December 31, 2012 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Insurance intangible |  | $ | 559,288 |  |  | $ | — |
Variable interest entities |  |  | 131,137 |  |  |  | 22,015 |
Investments |  |  | 168,653 |  |  |  | — |
Deferred acquisition costs |  |  | — |  |  |  | 57,262 |
Unearned premiums and credit fees |  |  | 38,826 |  |  |  | 22,714 |
Other |  |  | 2,221 |  |  |  | 17,251 |
Total deferred tax liabilities |  |  | 900,125 |  |  |  | 119,242 |
Deferred tax assets: |  |  |  |  |  |  |  |
Unrealized losses & impairments on investments |  |  | — |  |  |  | 12,605 |
Net operating loss and capital carryforward |  |  | 2,177,029 |  |  |  | 2,857,926 |
Loss reserves |  |  | 634,692 |  |  |  | 490,677 |
Compensation |  |  | 8,724 |  |  |  | 7,184 |
AMT Credits |  |  | 4,269 |  |  |  | — |
Other |  |  | 58,581 |  |  |  | 5,687 |
Sub-total deferred tax assets |  |  | 2,883,295 |  |  |  | 3,374,079 |
Valuation allowance |  |  | 1,985,369 |  |  |  | 3,256,423 |
Total deferred tax assets |  |  | 897,926 |  |  |  | 117,656 |
Net deferred tax liability |  | $ | 2,199 |  |  | $ | 1,586 |
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. Recent cumulative losses are a significant piece of negative evidence in assessing whether a valuation allowance is required. As a result of Ambac’s history of operating losses as well as 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. Ambac’s provision for income taxes charged to income from continuing operations is comprised of the following:
|  | Successor Ambac |  |  | Predecessor Ambac |
|  | For the Eight Months Ended December 31, 2013 |  |  | For the Four Months Ended April 30, 2013 |  |  | For the Year Ended December 31, 2012 |
Current taxes |  | $ | 6,984 |  |  | $ | 761 |  |  | $ | 1,263 |
Deferred taxes |  |  | 530 |  |  |  | (6 | ) |  |  | 1,586 |
|  | $ | 7,514 |  |  | $ | 755 |  |  | $ | 2,849 |
The total effect of income taxes on net income and stockholders’ equity for the years ended December 31, 2013 and 2012 is as follows:
|  | Successor Ambac |  |  | Predecessor Ambac |
|  | For the Eight Months Ended December 31, 2013 |  |  | For the Four Months Ended April 30, 2013 |  |  | For the Year Ended December 31, 2012 |
Total income taxes charged to net income |  | $ | 7,514 |  |  | $ | 755 |  |  | $ | 2,849 |
Income taxes charged (credited) to stockholders’ equity: |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gains (losses) on investment securities |  |  | 284 |  |  |  | (204,145 | ) |  |  | 18,448 |
Valuation Allowance to Equity |  |  | (284 | ) |  |  | 204,145 |  |  |  | (18,448 | )
Other |  |  | — |  |  |  | — |  |  |  | — |
Total charged to stockholders’ equity: |  |  | — |  |  |  | — |  |  |  | — |
Total effect of income taxes |  | $ | 7,514 |  |  | $ | 755 |  |  | $ | 2,849 |
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 |
|  | For the Eight Months Ended December 31, 2013 |  |  | For the Four Months Ended April 30, 2013 |  |  | For the Year Ended December 31, 2012 |
|  | $ |  |  | % |  |  | $ |  |  | % |  |  | $ |  |  | % |
Tax on income from continuing operations at statutory rate |  | $ | 179,311 |  |  |  | 35.0% |  |  | $ | 1,171,812 |  |  |  | 35.0% |  |  | ($ | 89,777) |  |  |  | 35.0% |
Changes in expected tax resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Reorganization income |  |  | — |  |  |  | 0.0% |  |  |  | (712,581) |  |  |  | (21.3)% |  |  |  | — |  |  |  | — % |
Tax bankruptcy adjustments |  |  | — |  |  |  | 0.0% |  |  |  | 285,734 |  |  |  | 8.5% |  |  |  | — |  |  |  | — % |
IRS Settlement |  |  | — |  |  |  | 0.0% |  |  |  | 370,996 |  |  |  | 11.1% |  |  |  | — |  |  |  | — % |
Tax-exempt interest |  |  | (11,988) |  |  |  | (2.3)% |  |  |  | (4,996) |  |  |  | (0.1)% |  |  |  | (17,795) |  |  |  | 6.9% |
Valuation allowance |  |  | (160,064) |  |  |  | (31.2)% |  |  |  | (1,110,230) |  |  |  | (33.2)% |  |  |  | 107,502 |  |  |  | (41.9)% |
Net addition to (release of) tax reserves |  |  | — |  |  |  | — % |  |  |  | — |  |  |  | — % |  |  |  | — |  |  |  | — % |
Other, net |  |  | 255 |  |  |  | 0.0% |  |  |  | 20 |  |  |  | 0.0% |  |  |  | 2,919 |  |  |  | (1.1)% |
Tax expense on income from continuing operations |  | $ | 7,514 |  |  |  | 1.5% |  |  | $ | 755 |  |  |  | — % |  |  | $ | 2,849 |  |  |  | (1.1)% |
A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2013 and 2012 is as follows:
|  | Successor Ambac |  |  |  |  | Predecessor Ambac |
|  | For the Eight Months Ended December 31, 2013 |  |  |  |  | For the Four Months Ended April 30, 2013 |  |  | For the Year Ended 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.
Included in these balances at December 31, 2013, April 30, 2013 and December 31, 2012 are $0, $0 and $96,900, respectively, of unrecognized tax benefits that, if recognized, would affect the effective tax rate. During the Successor period from May 1 to December 31, 2013, the Predecessor period January 1 to April 30, 2013 and December 31, 2012, Ambac recognized interest of approximately $0, $0 and $0, respectively. Ambac had approximately $0, $0 and $0 for the payment of interest accrued at December 31, 2013, April 30, 2013 and December 31, 2012, respectively. 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 |  | Applicable Percentage |
A |  | The first $479,000,000 |  |  | 15 | %
B |  | The next $1,057,000,000 after Tier A |  |  | 40 | %
C |  | The next $1,057,000,000 Tier B |  |  | 10 | %
D |  | The next $1,057,000,000 after Tier C |  |  | 15 | %
To the extent Ambac Assurance utilizes Allocated NOLs generated prior to September 30, 2011 greater than $3,650,000,000 it is obligated to pay Ambac 25% of the federal income tax liability that would have been paid if the NOLs were not available. For the period from September 30, 2011 through December 31, 2013, Ambac Assurance has generated taxable losses of approximately $270,321. Future taxable income shall be offset against this amount prior to payments under the NOL usage table above. The NOL allocable to AFG as of December 31, 2013 is $1,396,673.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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