Ron, a certifiable terminally ill patient, sold the ownership of his life insurance policy to a viatical settlement provider for $200,000. Which of the following statements is/are true with respect to the transfer?

1. Ron will be subject to income tax on this transaction if he lives beyond two years. 2. Ron will be subject to income tax on the sale proceeds less his cost basis.

a. 2 only.

b. Neither 1 nor 2.

c. 1 only.

d. Both 1 and 2.