Twenty years ago, Mr. Wallace purchased a $250,000 insurance policy on his own life and named his daughter as sole beneficiary. He has paid $14,250 total premiums to keep this policy in force. This year, he liquidates the policy for its $20,000 cash surrender value. Which of the following statements is true?

Question

Quizplus · Accepted Answer

Mr. Wallace recognizes $5,750 ordinary income on the liquidation because the amount realized ($20,000) minus the total premiums paid ($14,250) results in a gain of $5,750, which is treated as ordinary income for tax purposes in the context of life insurance policy liquidation.

Twenty Years Ago, Mr