Theima and Louise are equal owners of a business valued at $$400,000.$ They

adopted a cross$-$purchase buy$-$sell plan over $10$ years ago, and now Thelma

wants to leave the business to do more traveling. Thelma wants Louise to bury

the lite insurance policy Thelma owns on Louise. Which of the following

statements conceming a sale of the policy is correct?

A sale from Thelma to Louise will be prohibited under the transfer for value rule.

If Louise burys the policy, the policy proceeds will be fully excluded from income when

paid to Louise's beneficiary.

If Louise buys the policy, a portion of the policy proceeds will be ordinary income

when paid to Louise's beneficiary

If Louise buys the policy, Thelma will report gain, and Louise will later report capital

gain when Thelma dies.