Annual report pursuant to Section 13 and 15(d)

Income Taxes

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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes Income TaxesThe income tax provision charged to operations for the years ended December 31, 2021, 2020 and 2019 was as follows (in thousands):
Years Ended December 31,
  2021 2020 2019
Current:
U.S. Federal $ 90,920  $ 44,395  $ 55,562 
State and local 2,345  1,607  1,930 
Current income tax expense 93,265  46,002  57,492 
Deferred (benefit) expense (228) (2,389) 26,035 
Total income tax expense $ 93,037  $ 43,613  $ 83,527 
 
Although TPL was a trust until January 11, 2021, it has historically been taxed as if it were a corporation for income tax purposes prior to its conversion to a corporation. Total income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 21% for the years ended December 31, 2021, 2020 and 2019 to income before Federal income taxes as a result of the following (in thousands):
Years Ended December 31,
  2021 2020 2019
Computed tax expense at the statutory rate of 21% $ 76,234  $ 46,129  $ 84,473 
Reduction in income taxes resulting from:
Statutory depletion (584) (4,577) (5,163)
State taxes 1,740  1,234  1,657 
Executive compensation 1,687  789  1,302 
Prior year tax adjustments 18  7  755 
Correction of historical tax depletion 12,975  —  — 
Estimated penalties and interest 1,022  —  — 
Other, net (55) 31  503 
Total income tax expense $ 93,037  $ 43,613  $ 83,527 
Effective tax rate (1)
25.6  % 19.9  % 20.8  %
(1)    The correction of historical tax depletion increased the effective tax rate from 22.1% to 25.6%.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2021 and 2020 are as follows (in thousands):
  December 31, 2021 December 31, 2020
Unearned revenue $ 5,050  $ 5,633 
Basis difference in pension plan liability 128  452 
Other 25  — 
Total deferred tax assets 5,203  6,085 
Property, plant and equipment 16,037  16,314 
Real estate and royalty interests 28,114  28,494 
Other —  5 
Total deferred tax liabilities 44,151  44,813 
Deferred taxes payable $ (38,948) $ (38,728)

TPL is subject to taxation in the United States and Texas. TPL is no longer subject to U.S. Federal income tax examination by tax authorities for tax years before 2018. During the quarter ended December 31, 2021, TPL identified an error in income taxes payable and current income tax expense as a result of incorrect tax treatment of depletion related to our oil and gas royalty interests in our filed income tax returns related to prior periods. TPL determined that current income tax expense,
including penalties and interest, was understated by $4.6 million, $4.7 million and $3.7 million for the years ended December 31, 2020, 2019 and 2018, respectively, and income taxes payable was understated by $13.0 million and $8.4 million as of December 31, 2020 and 2019. In addition, current income tax expense was understated by $1.7 million, $2.0 million, and $2.7 million for the three months ended March 31, 2021, the three months ended June 30, 2021, and the three months ended September 30, 2021, respectively, for a total of $6.4 million for the nine months ended September 30, 2021. During the quarter ended December 31, 2021, TPL recorded an out-of-period adjustment of $19.4 million to current income tax expense and income taxes payable related to historical annual periods in the amount of $13.0 million and current year quarterly periods in the amount of $6.4 million. TPL evaluated the effects of this out-of-period adjustment, both qualitatively and quantitatively, and concluded that this adjustment was not material to TPL's financial position or results of operations for the current or any prior periods. Accrued interest and penalties are included in income taxes payable in the consolidated balance sheets and were $2.0 million and zero as of December 31, 2021 and 2020, respectively. Interest and penalties will continue to accrue and will be recorded to income tax expense until the income tax returns are amended and income taxes are paid.