Banking Terms - Set 7 (Underpayment Penalty, VITA, Mandatory & Voluntary Corporate Action)

Voluntary Corporate Action

Voluntary corporate actions provide the shareholders an option to respond or select from a list of possible actions. The Stakeholder can also choose not to participate in the Corporate Action.

E.g. Exchange Offer – Event by which Holders can exchange there securities for

1. Cash 
2. another security
3. do not exchange

Above three are the options that will be available for the shareholders to choose from.

Mandatory Corporate Action with Option

Mandatory corporate actions with options can be defined as, shareholder will be given options to choose from of which one will be default. Stakeholders who are not participating in the action will be offered the default option.

E.g. Optional Stock Dividend [Shareholders can either choose to get dividend in Cash (or) Equity, default being Equity].

Mandatory Corporate Action

Mandatory corporate actions are Mandated on the Stakeholders and will not have any option to choose from.

E.g. Calls [Calling back the bonds/equities that is present in the market].

Volunteer Income Tax Assistance (VITA)

Volunteer Income Tax Assistance (VITA) sites are available in most communities to help with tax return preparation. People volunteer their time to help their neighbors. The service is free to those with limited or moderate income people, non-English-speaking, the elderly and the disabled. Some VITA sites even offer free electronic filing.

Ex: VITA is in USA, Similarly in India, Few sites like simpletaxindia.net, mytaxindia.com provide information on tax filing.

Underpayment Penalty

The United States income tax is a pay-as-you-go tax, which means that tax must be paid as you earn or receive your income during the year. You can either do this through withholding or by making estimated tax payments. If you did not pay enough tax throughout the year, you may have to pay a penalty for underpayment of estimated tax. Most taxpayers will avoid this penalty if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.

Ex: You made estimated tax payments of $4,00 per quarter, thinking that $16,00 would be enough to cover 90% of your tax liability in a year. It turned out that $18,00 was required to cover 90% of your tax liability, so you should have paid an additional $50 per quarter. The underpayment penalty at the 8% rate for this situation.