Mr. Adams paid $53,500 in premiums on a whole life insurance policy. When he canceled the policy, he received its cash surrender value of $61,600. He must recognize $61,600 income as a result of the cancellation.

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The amount received upon cancellation of a whole life insurance policy generally consists of a nontaxable return of premiums, as well as taxable income from any accumulated earnings or gains. In this case, the amount received ($61,600) exceeds the premiums paid ($53,500), suggesting that there may be some taxable income. However, the amount of taxable income would depend on various factors, such as the cost basis of the policy and the method used to calculate the taxable gain. Without additional information, we cannot determine whether Mr. Adams must recognize $61,600 income as a result of the cancellation.

Mr Adams Paid $53,500 in Premiums on a Whole Life