* Plan includes proposed $102 mln settlement with IRS
* IRS must accept settlement for plan to become effective
* Noteholders would get some recovery; equity wiped out
March 14 (Reuters) - Ambac Financial Group Inc gained court approval on Wednesday on a plan to emerge from bankruptcy by restructuring nearly $1.7 billion in notes and settling a key tax dispute with the Internal Revenue Service.
As part of the plan, Ambac has proposed a $101.9 million settlement with the IRS, which had challenged Ambac's tax accounting practices related to credit default swap contracts.
The settlement needs IRS approval before Ambac can officially exit bankruptcy.