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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | 14. INCOME TAXES Ambac files a consolidated U.S. 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 subsidiaries operate and the earliest tax years subject to examination:
Jurisdiction | Tax Year
United States | 2010
New York State | 2013
New York City | 2014
United Kingdom | 2014
Italy | 2013
On December 22, 2017, H.R. 1. (commonly referred to as the Tax Cut and Jobs Act or "TCJA") was enacted and significantly changed the tax code effective January 1, 2018. We incorporated the effects of the TCJA in our current and deferred tax evaluation for the year ended December 31, 2017. Given the complexity of the TCJA and the limited time between its enactment and the filing of year-end financial statements, the SEC issued guidance (SAB 118), which provides a one-year measurement period for companies to finalize the accounting for the impact of the TCJA. Ambac has recorded the income tax effect of those aspects of the TCJA for which the accounting is completed and recorded provisional amounts for those aspects for which the accounting is incomplete. In connection with our preliminary analysis of the TCJA, Ambac recorded an estimated discrete current benefit of $29,581 (net of an estimated 6.6% Congressional budget sequestration haircut) related to the repeal of the Alternative Minimum Tax ("AMT") and deferred taxes of $31,418 attributable to Ambac UK, including the effect of the TCJA changes relating to unrealized gains on investments, resulting in an estimated net cost of $1,886. The AMT credit will be refunded in installments through 2021 or sooner based upon taxable income. Ambac has not completed its accounting analysis of the TCJA's impact on moving to a new quasi-territorial worldwide tax system, the primary effect of which is a mandatory repatriation of Ambac UK's historical earnings. Accordingly, the provisions related to these international tax changes have been recorded as estimates. Ambac has also not completed the accounting analysis on provisions related to executive compensation and, therefore, recorded these amounts as estimates. As of December 31, 2017 Ambac had U.S. federal net operating loss tax carryforwards of approximately $3,694,844, which, if not utilized, will begin expiring in 2029, and will fully expire in 2032. The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities and deferred tax assets at December 31, 2017 and 2016 are presented below:
December 31, | 2017 |  | 2016
Deferred tax liabilities: |  |  |
Insurance intangible | $ | 177,864 |  |  | $ | 336,728 |
Variable interest entities | 22,817 |  |  | 46,343 |
Investments | 28,798 |  |  | 38,656 |
Unearned premiums and credit fees | 51,485 |  |  | 68,682 |
Unremitted foreign earnings | — |  |  | 30,699 |
Other | 9,402 |  |  | 4,276 |
Total deferred tax liabilities | 290,366 |  |  | 525,384 |
Deferred tax assets: |  |  |
Net operating loss and capital carryforward | 775,917 |  |  | 1,409,565 |
Loss reserves | 236,237 |  |  | 224,553 |
Compensation | 5,585 |  |  | 4,759 |
AMT Credits | — |  |  | 31,532 |
Other | 2,140 |  |  | 11,967 |
Subtotal deferred tax assets | 1,019,879 |  |  | 1,682,376 |
Valuation allowance | 763,172 |  |  | 1,158,712 |
Total deferred tax assets | 256,707 |  |  | 523,664 |
Net deferred tax (liability) | (33,659 | ) |  | (1,720 | )
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. With respect to Ambac's domestic subsidiaries subject to U.S. tax, 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 maintains a full valuation allowance. The remaining net deferred tax liability of $33,659 is attributable to Ambac U.K. U.S. and foreign components of pre-tax income (loss) were as follows:
Year Ended December 31, | 2017 |  | 2016 |  | 2015
U.S. | $ | (450,978 | ) |  | $ | 77,161 |  |  | $ | 337,753 |
Foreign | 166,727 |  |  | 27,865 |  |  | 172,305 |
Total | $ | (284,251 | ) |  | $ | 105,026 |  |  | $ | 510,058 |
The components of the provision (benefit) for income taxes were as follows:
Year Ended December 31, | 2017 |  | 2016 |  | 2015
Current taxes |  |  |  |  |
U. S. federal | $ | (29,581 | ) |  | $ | 3,934 |  |  | $ | 16,893 |
U.S. state and local | 2,013 |  |  | 707 |  |  | 182 |
Foreign | 40,613 |  |  | 26,088 |  |  | 2 |
Current taxes | 13,045 |  |  | 30,729 |  |  | 17,077 |
Deferred taxes |  |  |  |  |
Deferred taxes - foreign | 31,419 |  |  | (20 | ) |  | 287 |
Provision for income taxes | $ | 44,464 |  |  | $ | 30,709 |  |  | $ | 17,364 |
The total effect of income taxes on net income and stockholders’ equity for the years ended December 31, 2017, 2016 and 2015 is as follows:
Year Ended December 31, | 2017 |  | 2016 |  | 2015
Total income taxes charged to net income | $ | 44,464 |  |  | $ | 30,709 |  |  | $ | 17,364 |
Income taxes charged (credited) to stockholders’ equity: |  |  |  |  |
Unrealized gains (losses) on investment securities | (30,838 | ) |  | 41,602 |  |  | (55,906 | )
Unrealized gains (losses) on foreign currency translations | 25,776 |  |  | (58,527 | ) |  | (15,628 | )
Change in retirement benefits | 446 |  |  | 3,278 |  |  | (240 | )
Valuation allowance to equity | 4,616 |  |  | 13,647 |  |  | 71,774 |
Total effect of income taxes | $ | 44,464 |  |  | $ | 30,709 |  |  | $ | 17,364 |
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:
| 2017 |  | 2016 |  | 2015
Year Ended December 31, | Amount |  | % |  | Amount |  | % |  | Amount |  | %
Tax on income from continuing operations at statutory rate | $ | (99,488 | ) |  | 35.0 | % |  | $ | 36,759 |  |  | 35.0 | % |  | $ | 178,521 |  |  | 35.0 | %
Changes in expected tax resulting from: |  |  |  |  |  |  |  |  |  |  |
Tax-exempt interest | (6,004 | ) |  | 2.1 | % |  | (1,561 | ) |  | (1.5 | )% |  | (1,454 | ) |  | (0.3 | )%
Goodwill impairment | — |  |  | — | % |  | — |  |  | — | % |  | 180,079 |  |  | 35.3 | %
Foreign taxes | (17,742 | ) |  | 6.2 | % |  | 26,183 |  |  | 24.9 | % |  | 288 |  |  | 0.1 | %
Substantiation adjustment | 36,124 |  |  | (12.7 | )% |  | (171,687 | ) |  | (163.5 | )% |  | — |  |  | — | %
Valuation allowance | 127,675 |  |  | (44.9 | )% |  | 139,584 |  |  | 132.9 | % |  | (340,133 | ) |  | (66.7 | )%
Change in Tax Law | 1,886 |  |  | (0.7 | )% |  | — |  |  | — | % |  | — |  |  | — | %
Other, net | 2,013 |  |  | (0.7 | )% |  | 1,431 |  |  | 1.4 | % |  | 63 |  |  | — | %
Tax expense on income from continuing operations | $ | 44,464 |  |  | (15.6 | )% |  | $ | 30,709 |  |  | 29.2 | % |  | $ | 17,364 |  |  | 3.4 | %
A reconciliation of the beginning and ending amount of unrecognized tax benefits for 2017, 2016 and 2015 is as follows:
Year Ended December 31, | 2017 |  | 2016 |  | 2015
Balance, beginning of period | $ | — |  |  | $ | — |  |  | $ | — |
Increases related to prior year tax positions | — |  |  | — |  |  | — |
Decreases related to prior year tax positions | — |  |  | — |  |  | — |
Balance, end of period | $ | — |  |  | $ | — |  |  | $ | — |
Included in these balances at December 31, 2017, 2016 and 2015 are $0, $0 and $0, respectively, of unrecognized tax benefits that, if recognized, would affect the effective tax rate. During the years ended December 31, 2017, 2016 and 2015, 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, 2017, 2016 and 2015, respectively. NOL Usage Pursuant to the amended and restated tax sharing agreement among Ambac, Ambac Assurance and certain affiliates (the “Amended TSA"), to the extent Ambac Assurance generates taxable income after September 30, 2011, which is offset with "Allocated NOLs" of $3,650,000, 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. Pursuant to the Closing Agreement between Ambac and the Internal Revenue Service ("IRS"), the IRS will receive 12.5% of Tier C and 17.5% of Tier D payments, if made. NOL Usage Table
NOL Usage Tier | Allocated NOLs |  | 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%
Any post determination date NOLs generated by Ambac Assurance are utilized prior to any Allocated NOLs for which Tolling Payments will be due. Ambac Assurance utilized all of its current post determination date NOLs generated from September 30, 2011 through December 31, 2017, generating cumulative taxable income of $1,367,795. 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. For the two years ended December 31, 2016, Ambac Assurance utilized all of the $479,000 Tier A NOL and $607,124 of the $1,057,000 Tier B NOL resulting in Tolling Payments , net of applicable credits, of $100,145, of which $71,454 was paid to Ambac in 2016 and $28,691 was paid in 2017. During the year ended December 31, 2017, Ambac Assurance recorded additional estimated Tolling Payments of $31,133, which includes $637 of additional tolling resulting from the filing Ambac's 2016 tax return that was paid in December 2017. The balance of $30,496 will be paid to Ambac in May 2018. Beginning on the fifth anniversary date subsequent to Ambac's May 1, 2013, emergence from bankruptcy, and subject to Ambac's consent, not to be unreasonably withheld, to the extent Ambac Assurance generates post-determination date income in excess of the $3,650,000, Allocated NOLs, Ambac Assurance may utilize the remaining NOLs, previously reserved for usage by Ambac, in exchange for a payment of 25% of the federal income tax liability that Ambac Assurance would have been paid had Ambac's NOLs not been available. After Ambac fully utilizes its Allocated NOLs it may utilize Ambac Assurance's then remaining Allocated NOLs in exchange for a payment of 50% of the federal income tax liability that Ambac would have paid had Ambac Assurance's NOL not been available. As of December 31, 2017, the remaining balance of the $3,650,000 NOL allocated to Ambac Assurance was $2,282,205. As of December 31, 2017 Ambac's NOL was $1,412,639.

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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 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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