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INCOME TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
Income tax expense differs from the amount of income tax determined by applying the United States statutory federal income tax rate of 21% to pre-tax income due to the following:
Years Ended December 31,
(in millions)202120202019
Federal Income Tax Expense at Statutory Rate$49 $49 $46 
State Income Tax Expense, Net of Federal Deduction9 9 9 
Federal/State Tax Credits (1)
(10)(3)(6)
Allowance for Equity Funds Used During Construction(3)(7)(3)
Excess Deferred Income Taxes(14)(7)(9)
Impact of AMT Sequestration— — (2)
Other1 — (1)
Total Income Tax Expense$32 $41 $34 
(1)In 2021, TEP realized PTC benefits of $7 million related to Oso Grande being placed in service in May 2021.
Income Tax Expense included on the Consolidated Statements of Income consists of the following:
Years Ended December 31,
(in millions)202120202019
Current Income Tax Expense
Federal$(2)$(2)$(8)
State— 1 — 
Total Current Income Tax Expense(2)(1)(8)
Deferred Income Tax Expense
Federal27 37 41 
Federal Investment Tax Credits(1)(1)(4)
State8 6 5 
Total Deferred Income Tax Expense34 42 42 
Total Income Tax Expense$32 $41 $34 
In 2018, ACC Refund Orders were approved requiring TEP to share EDIT amortization of the ACC-jurisdictional assets with customers. The EDIT activity of $14 million, $7 million, and $9 million was amortized from Regulatory Liabilities on the Consolidated Balance Sheets as of December 31, 2021, 2020, and 2019, respectively. As part of the 2020 Rate Order, TEP received approval of a TEAM that allows income tax changes that materially affect TEP’s authorized revenue requirement to be shared with customers including changes in EDIT amortization. Effective January 1, 2021, TEP shares any changes in its EDIT amortization through the usage-based adjustor. See Note 2 for additional information regarding the 2020 Rate Order.
Under the TCJA, existing AMT credit carryforwards could be refunded or used to offset U.S. federal income tax liabilities through our 2021 tax year. Along with other significant provisions, the CARES Act accelerated the recovery of remaining AMT credits by allowing corporations to immediately claim refunds of all unused carryforward balances. In 2020, the remaining AMT credit carryforward balance of $14 million was refunded to the Company.
The significant components of deferred income tax assets and liabilities consist of the following:
December 31,
(in millions)20212020
Gross Deferred Income Tax Assets
Customer Advances and Contributions in Aid of Construction$20 $19 
Other Postretirement Benefits15 15 
Investment Tax Credit Carryforward23 19 
Income Taxes Payable Through Future Rates67 74 
Other93 76 
Total Gross Deferred Income Tax Assets218 203 
Gross Deferred Income Tax Liabilities
Plant, Net(682)(639)
PPFAC(23)(6)
Plant Abandonments(8)(11)
Pensions(18)(17)
Income Taxes Recoverable Through Future Rates(4)(7)
Other(32)(16)
Total Gross Deferred Income Tax Liabilities(767)(696)
Deferred Income Taxes, Net$(549)$(493)
TEP recorded no valuation allowance against all other tax credit and net operating loss carryforward deferred income tax assets as of December 31, 2021 and 2020. Management believes TEP will produce sufficient taxable income in the future to realize credit and loss carryforwards before they expire.
As of December 31, 2021, TEP had the following carryforward amounts:
($ in millions)AmountExpiring Year
State Net Operating Loss$1 2026
State Credits9 2023 - 29
Investment Tax Credits22 2034 - 41
Other Federal Credits8 2034 - 41
UNCERTAIN TAX POSITIONS
A reconciliation of the beginning and ending balances of unrecognized tax benefits follows:
December 31,
(in millions)20212020
Beginning of Period$19 $18 
Additions Based on Tax Positions Taken in the Current Year— 1 
Reductions Based on Positions Taken in Prior Years(18)— 
End of Period$1 $19 
Unrecognized tax benefits, if recognized, would reduce income tax expense by $1 million in 2021 and 2020.
TEP recorded no interest expense in 2021 and 2020 related to uncertain tax positions. In addition, TEP had no interest payable and no penalties accrued as of December 31, 2021 and 2020.
TEP has been audited by the IRS through tax year 2010. TEP's 2011 to 2020 tax years are open for audit by federal and state tax agencies.
TEP had previously filed an application with the IRS for a change in accounting method on uncertain tax positions. On February 2, 2021, TEP received approval of this application from the IRS which resulted in a $18 million decrease in uncertain tax position obligations on a prospective basis.
TAX SHARING AGREEMENT
Under the terms of the tax sharing agreement with UNS Energy, TEP made net payments of $7 million in 2021 and received net refunds of $10 million in 2020 and $14 million in 2019 related to Federal income tax returns.