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QUESTION

1. Explain the income taxation of payments to a contingent beneficiary upon the death of the primary payee who was receiving guaranteed payments under a life income settlement option. 2. 3.

1.      Explain the income taxation of payments to a contingent beneficiary upon the death of the primary payee who was receiving guaranteed payments under a life income settlement option.

2.     

3.      The Glimmer Corporation is the owner of a policy on the life of Richards, its president.  The corporation pays premiums and is named as beneficiary.  Are these premiums deductible by the Glimmer Corporation? Explain.

4.     

5.      Explain the income tax consequences of transferring the life insurance policy or policies in each of the following situations:

a.      Ralph takes out a policy on his own life.  He later assigns the policy to the Bull Corporation for which he works as an account executive.  He receives the cash value of the policy as consideration.

b.      Leonard is a partner in the L&M partnership.  The partnership owns a policy on Leonard’s life that it no longer needs.  It sells the policy to Leonard for its current value.

c.       Sharon gives a policy on her life to her son, who later sells it to Sharon’s friend Bonnie.  Sharon’s business provides a market for almost 100 percent of the products of Bonnie’s company, and Bonnie fears a financial setback at Sharon’s death.

d.      Quint and Clint own 100 percent of the stock of QC Corporation.  The corporation currently owns a policy on each of their lives.  For personal reasons, Quint and Clint purchase the policies on their own lives from the corporation and enter into a buy-sell agreement on a cross-purchase basis.  Quint and Clint trade policies so that each shareholder holds a policy on the other’s life in order to fund the buy-sell agreement.

6.     

7.      a. Explain the concept of insurable interest.

b. what effects does a lack of insurable interest at the time a policy is issued have on the taxation of proceeds?

What effect does a lack of insurable interest at the time a policy matures have on the taxation of proceeds?

8.     

9.      If a corporation’s shareholders are not employees, how will the payment of premiums on a life insurance policy by the corporation be treated for income tax purposes if

a.      The shareholders are beneficiaries.

b.      The shareholders are both beneficiaries and owner of the policy?

10. 

11.  What are the requirements that must exist for premium payments by one spouse or former spouse for life insurance owed by a benefiting the other spouse to be deductible as alimony by the payer-spouse and taxable to the payee-spouse? Explain.

I need the answer to each question to have an Internal Revenue Code Section cited. 

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