Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of the income tax expense from continuing operations are as follows:

	Years Ended December 31,
	2021		2020	2019
	(Dollars in millions)
Income tax expense:
Federal and foreign
Current	$	553	425	415
Deferred	17		40	95
State and local
Current	129		128	126
Deferred	10		2	5
Income tax expense	$	709	595	641

The effective income tax rate for continuing operations differs from the statutory tax rate as follows:

	Years Ended December 31,
	2021		2020		2019
	(in percent)
Effective income tax rate:
Federal statutory income tax rate	21.0	%	21.0	%	21.0	%
State income taxes-net of federal effect	3.7	%	4.4	%	4.1	%
Other	0.5	%	0.4	%	0.9	%
Effective income tax rate	25.2	%	25.8	%	26.0	%

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:

	As of December 31,
	2021		2020
	(Dollars in millions)
Deferred tax liabilities:
Property, plant and equipment	$	(1,386)	(1,369)
Intangible assets	(129)		(169)
Other	(25)		—
Total deferred tax liabilities	(1,540)		(1,538)
Deferred tax assets:
Payable to affiliate due to post-retirement benefit plan participation	274		284
Other	—		15
Gross deferred tax assets	274		299
Less valuation allowance on deferred tax assets	(8)		(8)
Net deferred tax assets	266		291
Net deferred tax liabilities	$	(1,274)	(1,247)

At December 31, 2021, we have established a valuation allowance of $8 million as it is not more likely than not that this amount of deferred tax assets will be realized.

As of December 31, 2021 and 2020, the $1.3 billion and $1.2 billion net deferred tax liability are reflected as a $1.3 billion and $1.2 billion long-term liability and $2 million and $2 million are reflected as a noncurrent deferred tax asset in other, net on our consolidated balance sheets.

With few exceptions, we are no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2016. The Internal Revenue Service and state and local taxing authorities reserve the right to audit any period where net operating loss carryforwards are available.

A reconciliation of the change in our gross unrecognized tax benefits (excluding both interest and any related federal benefit) from January 1 to December 31 for 2021 and 2020 are as follows:

	Years ended December 31,
	2021		2020
	(Dollars in millions)
Unrecognized tax benefits at beginning of period	$	388	414
Increase due to tax positions taken in a prior year	—		—
Decrease due to tax positions taken in a prior year	(28)		(26)
Unrecognized tax benefits at end of period	$	360	388

The total amount of unrecognized tax benefits (including interest and net of federal benefit) that, if recognized, would impact the effective income tax rate was $407 million and $422 million as of December 31, 2021 and 2020, respectively.

Our policy is to reflect interest expense associated with unrecognized tax benefits in income tax expense. We had accrued interest (presented before related tax benefits) of approximately $75 million and $60 million as of December 31, 2021 and 2020, respectively.

Based on our current assessment of various factors, including (i) the potential outcomes of these ongoing examinations, (ii) the expiration of statute of limitations for specific jurisdictions, (iii) the negotiated settlement of certain disputed issues, and (iv) the administrative practices of applicable taxing jurisdictions, it is reasonably possible that the related unrecognized tax benefits for uncertain tax positions previously taken may not change in the next 12 months. The actual amount of changes, if any, will depend on future developments and events, many of which are outside our control.

We paid $697 million, $556 million, and $539 million related to income taxes for the years ended December 31, 2021, 2020, and 2019, respectively.