Mel was the beneficiary of a $45,000 group term life insurance policy on his wife. His wife's employer paid all of the premiums on the policy. Mel used the life insurance proceeds to purchase a United States Government bond, which paid him $2,500 interest during the current year. Mel's Federal gross income from the above is $2,500.

Question

Quizplus · Accepted Answer

The $2,500 interest earned from the government bond is considered taxable income for Mel, even though it was purchased with life insurance proceeds. Therefore, his Federal gross income is $2,500.

Mel Was the Beneficiary of a $45,000 Group Term Life