LOS ANGELES — Ambac Financial Group, Inc. announced Monday that it has agreed to pay the Internal Revenue Service $101.9 million to settle the agency's $800 million claim against the firm, setting the stage for Ambac to emerge from bankruptcy, the firm said.

Under the agreement, Ambac will pay the IRS $1.9 million, and Ambac Assurance Corporation, its municipal bond insurer subsidiary, or the company's "segregated account" will pay $100 million — terms the company had offered the IRS more than a year ago.

Ambac will also pay additional amounts based on any payments received by Ambac from AAC under the existing intercompany tax sharing agreement. The settlement will also limit Ambac's entitlement to claim any portion of disputed net operating loss carry-forwards related to its credit default swap contracts, which will result in a net reduction to Ambac's aggregate net operating loss carry-forwards of around $1.1 billion.

"The IRS settlement came about through the diligent efforts and support of many interested parties involved in the case and we believe the terms are fair, equitable, and in the best interests of Ambac, its creditors, and AAC," said Diana Adams, Ambac's president and chief executive officer. "This settlement puts us in a favorable position to emerge from bankruptcy and move forward with managing our existing business and exploring new business opportunities."

Once one of the top bond insurers, Ambac ran into financial trouble after it began insuring mortgage-backed securities in addition to municipal bonds. After the financial downturn, claims on the securities' insurance took off and Ambac ended up filing for bankruptcy protection in 2010. In 2012, it won approval for its reorganization plan.

In October 2010, the IRS contacted Ambac, saying it was questioning an $800 million tax refund that Ambac had received. The company had booked losses from its mortgage CDS policies as "ordinary losses," which were deducted from its taxable income. The IRS said that the losses should have instead been booked as "capital losses."

In February last year, Ambac offered to pay the IRS $101.9 million to settle the claim.

Monday's settlement is subject to approval from the U.S. Bankruptcy Court for the Southern District of New York. The motion is scheduled to be heard by the court at a hearing on April 29, 2013.

If the court approves the settlement, it will satisfy one of the remaining conditions under Ambac's reorganization plan.

The motion, which includes the complete terms of the settlement, is In re Ambac Financial Group, Inc., United States Bankruptcy Court Southern District of New York, No. 10-15973.

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