Ambac Assurance’s bid to protect its municipal bond insurance book from the Internal Revenue Service faces a daunting hurdle in federal court as the U.S. government argues it has every right to collect taxes it is owed regardless of how the company structures itself.

The IRS claims Ambac Assurance — which had $312.8 million of cash in the middle of 2010 — may owe more than $700 million in taxes. Its parent company is bankrupt.

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