Eighty$-$nine year old Margaret Sullivan owned a $$750,000$ life insurance policy on her life with a cash value of $$415,000.$ During her lifetime, she paid $$315,000$ in premiums on the policy. She was unable to negotiate any satisfactory transaction with a viatical settlement company and so decided to sell the policy to her best friend, Nora King. Nora purchased the policy for $$440,000.$ Regarding this situation as it relates to life insurance proceeds and the transfer for value rules,

I. if the viatical settlement company had purchased the policy, the transfer for value rules would not have applied

II$.$ if Nora predeceased Margaret, who died only a month later, and the policy was valued at $$400,000$ at the time of Margaret$$s death, Nora$$s estate would have to recognize $$310,000$ of taxable income under the transfer for value rules

III. at the time of sale to Nora, Margaret would have had to recognize $$25,000$ of ordinary income upon sale to Nora

IV$.$ IRD rules do not come into play if Nora predeceased Margaret

Select one:

a$.$ II

b$.$ I and II

c$.$ IV

d$.$ I and III