Reference no: EM132680761

Problem 1: Alfred owned a term life insurance policy at the time he was diagnosed with a "terminal illness" and expected to live 6 months. After paying $20,000 in premiums, he sold the policy to a company that is authorized by the state of California to purchase such policies. The company paid Alfred $125,000 for the policy. The company paid an additional $10,000 of premiums. When Alfred died 28 months later, the company collected the face value of the policy of $150,000. Which is true?

Select one or more:

a. The Company has income of $15,000 on the collection of the proceeds.
b. If Alfred had not sold the policy, but instead had named his niece as beneficiary and she collected the $150,000 face value of the policy, the niece would not have been taxable.
c. The Company has $150,000 income upon collection of the proceeds,
d. Since Alfred lived more than 24 months he would be taxable on the sale of the policy.
e. Alfred has taxable income of $105,000 upon the sale of the policy.