Question

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

A. True
B. False

Answer 1

The correct answer is A. True. When Mel used the life insurance proceeds to purchase a U.S. government bond and received $2,500 interest during the current year, this interest would be considered taxable income. Therefore, Mel's Federal gross income from this is $2,500.

Step-by-step explanation:

The correct answer is A. True. When Mel used the life insurance proceeds to purchase a U.S. government bond and received $2,500 interest during the current year, this interest would be considered taxable income. Therefore, Mel's Federal gross income from this is $2,500. It is important to note that life insurance proceeds themselves are generally not taxable, but any interest or earnings generated from investing those proceeds may be subject to taxation.