Fred borrowed $7,500 from his friend, Jason and had some difficulty repaying the loan as promised. Finally, Fred decided on a creative way to resolve the debt. He transferred a life insurance policy that he owned (on himself) to Jason. Face value on the policy was $125,000. At the time of the transfer the instrument had a cash surrender of $7,500. After the transfer Jason changed the beneficiary on the policy and named himself. Throughout the years, Jason continued to make payments (premiums). At the time of Freds death, Jason had made $12,500 in premium payments in total. Jason collected the face amount of $125,000 upon the death of his friend, Fred.

Question: What impact does this whole transaction have on Jasons taxes, if any?

To answer this question, use the Internal Revenue Code. You may refer to a textbook but you may not base the answer on the textbook you must reference the IRC section. What keywords did you use in your search to derive this answer?