Jim Harvey, your client, owns a life insurance policy on his own life. He has paid $6,500 in premiums, and the cash surrender value of the policy is $25,000. Jim Harvey borrowed $25,000 from the insurance company, using the cash surrender value as collateral. He is considering canceling the policy in payment of the loan. Jim Harvey would like to know the federal income tax consequences of canceling his insurance policy. Discuss the tax implications.