Liz Makum purchased a $300,000 policy on her own life. She paid five $5,000 annual premiums. At the beginning of year six, she sold the policy to her sister, Kate, for $25,000. Kate paid two additional $5,000 premiums and then Liz died. What amount of Kate's proceeds from the policy are subject to income tax at ordinary rates? Question 13 options: a) $300,000 b) $275,000 c) None, all proceeds are tax-free d) $265,000