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Income Taxes | 12 Months Ended
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Dec. 31, 2015
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 | 2011
New York City | 2011
United Kingdom | 2011
Italy | 2010
As of December 31, 2015 Ambac had loss carryforwards totaling $4,298,770. This includes carryforwards of $129,048 relating to U.S. capital losses, $14,936 of Ambac UK loss carryforwards, and an ordinary U. S. federal net operating tax carryforward of approximately $4,154,786, which, if not utilized, will begin expiring in 2029, and will fully expire in 2034. 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 as consideration to settle certain disputes with the Internal Revenue Service. 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, 2015 and 2014 are presented below:
December 31 | 2015 |  | 2014
Deferred tax liabilities: |  |  |
Insurance intangible | $ | 424,239 |  |  | $ | 493,822 |
Variable interest entities | 10,053 |  |  | 14,149 |
Investments | 66,278 |  |  | 136,017 |
Unearned premiums and credit fees | 98,945 |  |  | 104,589 |
Other | 34,025 |  |  | 33,835 |
Total deferred tax liabilities | 633,540 |  |  | 782,412 |
Deferred tax assets: |  |  |
Net operating loss and capital carryforward | 1,504,569 |  |  | 1,890,551 |
Loss reserves | 122,635 |  |  | 185,881 |
Compensation | 2,839 |  |  | 2,004 |
AMT Credits | 27,252 |  |  | 10,359 |
Other | 9,913 |  |  | 9,539 |
Sub total deferred tax assets | 1,667,208 |  |  | 2,098,334 |
Valuation allowance | 1,035,873 |  |  | 1,318,001 |
Total deferred tax assets | 631,335 |  |  | 780,333 |
Net deferred tax asset (liability) | $ | (2,205 | ) |  | $ | (2,079 | )
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. As a result of 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
|  |  |  |  | Period from May 1 |  |  | Period from Jan 1
| Year Ended December 31, |  | through |  |  | through
| 2015 |  | 2014 |  | December 31, 2013 |  |  | April 30, 2013
Current taxes | $ | 17,077 |  |  | $ | 9,463 |  |  | $ | 6,984 |  |  |  | $ | 761 |
Deferred taxes | 287 |  |  | 94 |  |  | 530 |  |  |  | (6 | )
Total | $ | 17,364 |  |  | $ | 9,557 |  |  | $ | 7,514 |  |  |  | $ | 755 |
The total effect of income taxes on net income and stockholders’ equity for the years ended December 31, 2015, 2014 and 2013 is as follows:
| Successor Ambac |  |  | Predecessor Ambac
|  |  |  |  | Period from May 1 |  |  | Period from Jan 1
| Year Ended December 31, |  | through |  |  | through
| 2015 |  | 2014 |  | December 31, 2013 |  |  | April 30, 2013
Total income taxes charged to net income | $ | 17,364 |  |  | $ | 9,557 |  |  | $ | 7,514 |  |  |  | $ | 755 |
Income taxes charged (credited) to stockholders’ equity: |  |  |  |  |  |  |  |
Unrealized gains (losses) on investment securities | (55,906 | ) |  | 88,411 |  |  | (14,669 | ) |  |  | (227,945 | )
Unrealized gains (losses) on foreign currency translations | (15,628 | ) |  | (15,108 | ) |  | 14,953 |  |  |  | 7,010 |
Change in retirement benefits | (240 | ) |  | (285 | ) |  | 3,797 |  |  |  | 1,594 |
Valuation allowance to equity | 71,774 |  |  | (73,018 | ) |  | (4,081 | ) |  |  | 219,341 |
Total effect of income taxes | $ | 17,364 |  |  | $ | 9,557 |  |  | $ | 7,514 |  |  |  | $ | 755 |
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
|  |  |  |  |  |  | Period from May 1 |  |  | Period from Jan 1
| Year Ended December 31, |  | through |  |  | through
| 2015 |  | 2014 |  | December 31, 2013 |  |  | April 30, 2013
| $ |  | % |  | $ |  | % |  | $ |  | % |  |  | $ |  | %
Tax on income from continuing operations at statutory rate | 178,521 |  |  | 35.0 | % |  | 172,639 |  |  | 35.0 | % |  | 179,311 |  |  | 35.0 | % |  |  | 1,171,812 |  |  | 35.0 | %
Changes in expected tax resulting from: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tax-exempt interest | (1,454 | ) |  | (0.3 | )% |  | (6,811 | ) |  | (1.4 | )% |  | (11,988 | ) |  | (2.3 | )% |  |  | (4,996 | ) |  | (0.1 | )%
Goodwill impairment | 180,079 |  |  | 35.3 | % |  | — |  |  | — | % |  | — |  |  | — | % |  |  | — |  |  | — | %
Foreign taxes | 288 |  |  | 0.1 | % |  | 3,472 |  |  | 0.7 | % |  | — |  |  | — | % |  |  | — |  |  | — | %
Valuation allowance | (340,133 | ) |  | (66.7 | )% |  | (159,661 | ) |  | (32.4 | )% |  | (160,064 | ) |  | (31.2 | )% |  |  | (1,110,230 | ) |  | (33.2 | )%
Reorganization income | — |  |  | — | % |  | — |  |  | — | % |  | — |  |  | — | % |  |  | (712,581 | ) |  | (21.3 | )%
Tax bankruptcy adjustments | — |  |  | — | % |  | — |  |  | — | % |  | — |  |  | — | % |  |  | 285,734 |  |  | 8.5 | %
IRS Settlement | — |  |  | — | % |  | — |  |  | — | % |  | — |  |  | — | % |  |  | 370,996 |  |  | 11.1 | %
Other, net | 63 |  |  | — | % |  | (82 | ) |  | — | % |  | 255 |  |  | — | % |  |  | 20 |  |  | — | %
Tax expense on income from continuing operations | 17,364 |  |  | 3.4 | % |  | 9,557 |  |  | 1.9 | % |  | 7,514 |  |  | 1.5 | % |  |  | 755 |  |  | — | %
A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2015 and 2014 is as follows:
| Successor Ambac |  |  | Predecessor Ambac
|  |  |  |  | Period from May 1 |  |  | Period from Jan 1
| Year Ended December 31, |  | through |  |  | through
| 2015 |  | 2014 |  | December 31, 2013 |  |  | April 30, 2013
Balance, beginning of period | — |  |  | — |  |  | — |  |  |  | 96,900 |
Increases related to prior year tax positions | — |  |  | — |  |  | — |  |  |  | — |
Decreases related to prior year tax positions(1) | — |  |  | — |  |  | — |  |  |  | (96,900 | )
Balance, end of period | — |  |  | — |  |  | — |  |  |  | — |
(1) | Amount paid in connection with IRS settlement as noted above.
Included in these balances at December 31, 2015, 2014, 2013 and April 30, 2013 are $0, $0, $0 and $0, respectively, of unrecognized tax benefits that, if recognized, would affect the effective tax rate. During the Successor period for the years ended December 31, 2015 and 2014 and from May 1 to December 31, 2013, the Predecessor period January 1 to April 30, 2013, Ambac recognized interest of approximately $0, $0, $0 and$0, respectively. Ambac had approximately $0, $0, $0, and $0 for the payment of interest accrued at December 31, 2015, 2014, 2013 and April 30, 2013, 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(1) |  | Applicable Percentage
A | The first | $479,000 |  | 15%
B | The next | $1,057,000 | after Tier A | 40%
C | The next | $1,057,000 | after Tier B | 10%
D | The next | $1,057,000 | after Tier C | 15%
(1) | Bankruptcy-related credits offset the first $5 million payment due under each of the NOL usage Tiers A, B and C. Pursuant to the Internal Revenue Service closing agreement the United States Department of Treasury receives 12.5% of Tier C and 17.5% of Tier D Tolling Payments.
To the extent Ambac Assurance utilizes Allocated NOLs generated prior to September 30, 2011 greater than $3,650,000 it is obligated to pay Ambac 25% of the federal income tax liability that would have been paid if the NOLs were not available. Ambac Assurance has utilized all of its current post determination date NOLs generated from September 30, 2011 through December 31, 2015 (post determination date NOLs); however, additional post determination date NOLs may be generated in the future. During this time period, Ambac Assurance's cumulative net taxable income was $877,313, which utilizing all of the $479,000 allocated Tier A NOL and $398,313 of the $1,057,000 allocated Tier B NOL and resulting in accrued Tolling Payments net of applicable credits of $70,911 payable to Ambac on May 1, 2016 (subject to review by the Rehabilitator). Of the bankruptcy related credits available to offset the first $5,000 of payments due under each of the NOL usage Tiers A, B, and C, Ambac Assurance has fully utilized the combined $10,000 of Tier A and Tier B credits. The NOL allocable to AFG as of December 31, 2015 is $1,382,109.

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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 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 2: 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 Reference 3: 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 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 + Details
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