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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

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			2010
New York State			2008
New York City			2011
United Kingdom			2006
Italy			2007

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, 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

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:

		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

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, 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

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:

		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)%

Reconciliation of Unrecognized Tax Benefits

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.

NOL Usage Table

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	%

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