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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | 14. INCOME TAXES AFG files a consolidated Federal income tax return with its subsidiaries. AFG 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 | 2016
United Kingdom | 2017
Italy | 2016
Consolidated Pretax Income (Loss) U.S. and foreign components of pre-tax income (loss) were as follows:
Year Ended December 31, | 2020 |  | 2019 |  | 2018
U.S. | $ | (441) |  |  | $ | (174) |  |  | $ | 264 |
Foreign | 1 |  |  | (9) |  |  | 8 |
Total | $ | (440) |  |  | $ | (183) |  |  | $ | 273 |
Provision (Benefit) for Income Taxes The components of the provision (benefit) for income taxes were as follows:
Year Ended December 31, | 2020 |  | 2019 |  | 2018
Current taxes |  |  |  |  |
U. S. federal | $ | — |  |  | $ | — |  |  | $ | (2) |
U.S. state and local | — |  |  | (3) |  |  | 2 |
Foreign | 8 |  |  | 37 |  |  | (1) |
Total current taxes | 8 |  |  | 34 |  |  | — |
Deferred taxes |  |  |  |  |
Foreign | (10) |  |  | (1) |  |  | 5 |
Total deferred taxes | $ | (10) |  |  | $ | (1) |  |  | $ | 5 |
Provision for income taxes | $ | (3) |  |  | $ | 32 |  |  | $ | 5 |
The total effect of income taxes on net income and stockholders’ equity for the years ended December 31, 2020, 2019 and 2018 is as follows:
Year Ended December 31, | 2020 |  | 2019 |  | 2018
Total income taxes charged to net income | $ | (3) |  |  | $ | 32 |  |  | $ | 5 |
Income taxes charged (credited) to stockholders’ equity: |  |  |  |  |
Unrealized gains (losses) on investment securities | 3 |  |  | 14 |  |  | 12 |
Unrealized gains (losses) on foreign currency translations | — |  |  | — |  |  | — |
Valuation allowance to equity | (3) |  |  | (23) |  |  | (9) |
Total charged to stockholders’ equity: | 1 |  |  | (8) |  |  | 3 |
Total effect of income taxes | $ | (1) |  |  | $ | 24 |  |  | $ | 8 |
Reconciliation of U.S. Federal Statutory Income Tax Rate to Actual Income Tax Rate 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:
| 2020 |  | 2019 |  | 2018
Year Ended December 31, | Amount |  | % |  | Amount |  | % |  | Amount |  | %
Tax on income (loss) at statutory rate | $ | (92) |  |  | 21.0 | % |  | $ | (38) |  |  | 21.0 | % |  | $ | 57 |  |  | 21.0 | %
Changes in expected tax resulting from: |  |  |  |  |  |  |  |  |  |  |
Tax-exempt interest | (2) |  |  | 0.4 | % |  | (3) |  |  | 1.8 | % |  | (7) |  |  | (2.5) | %
Foreign taxes | 6 |  |  | (1.4) | % |  | 40 |  |  | (22.1) | % |  | 10 |  |  | 3.9 | %
Substantiation adjustment | (29) |  |  | 6.7 | % |  | 28 |  |  | (15.3) | % |  | (60) |  |  | (22.0) | %
Valuation allowance | 113 |  |  | (25.6) | % |  | 8 |  |  | (4.4) | % |  | 5 |  |  | 1.9 | %
Change in Tax Law | — |  |  | — | % |  | — |  |  | — | % |  | (2) |  |  | (0.7) | %
Other, net | — |  |  | — | % |  | (2) |  |  | 1.3 | % |  | 1 |  |  | 0.4 | %
Tax expense on income (loss) | $ | (3) |  |  | 0.7 | % |  | $ | 32 |  |  | (17.7) | % |  | $ | 5 |  |  | 2.0 | %
Unrecognized Tax Positions A reconciliation of the beginning and ending amounts of material unrecognized tax benefits for 2020, 2019 and 2018 is as follows:
Year Ended December 31, | 2020 |  | 2019 |  | 2018
Balance, beginning of period | $ | — |  |  | $ | — |  |  | $ | — |
Increases related to prior year tax positions | — |  |  | — |  |  | — |
Decreases related to prior year tax positions | — |  |  | — |  |  | — |
Balance, end of period | $ | — |  |  | $ | — |  |  | $ | — |
Deferred Income Taxes The tax effects of temporary differences that give rise to significant portions of the deferred tax liabilities and deferred tax assets at December 31, 2020 and 2019, are presented below:
December 31, | 2020 |  | 2019
Deferred tax liabilities: |  |  |
Insurance intangible | $ | 78 |  |  | $ | 90 |
Unearned premiums and credit fees | 32 |  |  | 42 |
Investments | 22 |  |  | 32 |
Variable interest entities | 13 |  |  | 12 |
Other | 7 |  |  | 8 |
Total deferred tax liabilities | 152 |  |  | 183 |
Deferred tax assets: |  |  |
Net operating loss and capital carryforward | 764 |  |  | 742 |
Loss reserves | 218 |  |  | 148 |
Debentures | 22 |  |  | 29 |
Compensation | 9 |  |  | 7 |
Other | 5 |  |  | 1 |
Subtotal deferred tax assets | 1,019 |  |  | 927 |
Valuation allowance | 891 |  |  | 777 |
Total deferred tax assets | 128 |  |  | 151 |
Net deferred tax liability | $ | 24 |  |  | $ | 32 |
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 U.S. federal, state and/or local taxable income to recover the deferred tax operating assets and therefore maintains a full valuation allowance. The remaining net deferred tax liability of $24 is attributable to Ambac U.K. NOL Usage In December 2020, AFG and certain subsidiaries and affiliates amended their existing tax sharing agreement (the "Third TSA Amendment"). Under the Third TSA Amendment, AAC and AFG agreed to reallocate $210 of net operating loss carry-forwards (“NOLs”) from AAC to AFG and to eliminate AAC's requirement to make future payments based on its utilization of NOLs ("tolling payments") for any taxable year beginning on or after January 1, 2019. In connection with the Third TSA Amendment, AAC paid to AFG approximately $28 of accrued tolling payments based on NOLs used by AAC in 2017. The Third TSA Amendment did not affect the NOL tolling payments AAC would be required to make in connection with the 2013 Closing Agreement between Ambac and the United States Internal Revenue Service, which could amount to as much as $8. As of December 31, 2020, the Company has $3,639 of NOLs, which if not utilized will begin expiring in 2029, and will fully expire in 2041.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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