Mingfang and Kiren are partners in a law firm. The partners have entered into an arms length agreement requiring Mingfang to purchase Kirens partnership interest from Kirens estate if she dies before him. The price is set at 125% of the book value of Kirens partnership interest at the time of her death. Mingfang purchased an insurance policy on Kirens life to fund this agreement. After Mingfang had paid $20,000 in premiums, Kiren died due to lung cancer, and Mingfang collected one million dollars of life insurance proceeds. Mingfang used the life insurance proceeds to purchase Kirens partnership interest.

1. What amount should Mingfang include in his gross income from receiving the life insurance proceeds?
2. The insurance company paid $10,000 interest on the life insurance proceeds during the period Kirens estae was in administration. During this period, Mingfang had left the insurance proceeds with the insurance company. Is this interest taxable?
3. When Mingfang purchased Kirens partnership interest for one million dollars, as determined by the agreement, the fair market value of Kirens interest was $1.5 million. How much should Mingfang include in his gross income from this bargain purchase?