Old gambling debt-repay the debt in the near future

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Reference no: EM131560365

Joe owes Willy $5,000 from an old gambling debt. Joe knows that there is no way he can repay the debt in the near future. He asks Joe if he will take a $25,000 life insurance policy that has a cash surrender value of $4,200 and release him from debt. Willy makes only one premium payment on the insurance policy of $50 when Joe is killed in an auto accident. Willy collects the $25,000. Explain all the tax consequences of these events for both Joe and Willy.

Reference no: EM131560365

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