Your client, Jacob, turned 66 years old this year. Jacob has decided that he would like to sell a life insurance policy to fund a trip to Africa that he has wanted to take. He has no heirs.

Jacob knows that he could surrender the policy (a whole-life policy) back to the insurance company, but a friend told him he could get more for the policy if he sold it to a life settlement company. A life settlement company buys life insurance policies from policyholders who are not ill and who generally have a life expectancy of between 2 and 15 years. In return, the seller of the policy receives a lump-sum payment. The life settlement company either holds the policy to maturity or resells the policy to an investor.

The lump sum received depends on factors such as age, health, and the terms and conditions of the policy, but in general, the amount is more than the policys cash surrender value, which is the amount received from the life insurance company upon surrender of the policy.

In November 2019, Jacob (who was not terminally or chronically ill) sold his policy to a life settlement company for $160,000. During the time that he owned the policy, Jacob did not borrow against the policy or receive any distributions. Premiums paid on the policy by Jacob totaled $122,000 (of which $32,000 pertained to the provision of insurance before the sale of the policy).

What are the tax consequences to Jacob on the sale of his life insurance policy?

Prepare a Memorandum-to-the-File as described in Appendix A, page A-6.

Country: United States of America

Tax Research File As mentioned in Chapter C:1 the tax research process entails six steps. 1. Determine the facts 2. Identify the issues 3. Locate applicable authorities 4. Evaluate these authorities 5. Analyze the facts in terms of applicable authorities 6. Communicate conclusions and recommendations to others. A-6 Individuals Appendix A Memorandum-to-the-File Date: December 9, 20X1 From: Rosina Havacek Re: The taxability of meal vouchers furnished by Mercy Hospital to its medical staff. Facts State only the facts that are relevant to the Issue(s) and necessary for the Analysis. Our client, Mercy Hospital "Mercy" ), provides meal vouchers to its medical employees to enable them to remain on emergency call. The vouchers are redeemable at Mercy's onsite cafeteria and at MacDougal's, a privately owned sandwich shop. MacDougal's rents business space from the hospital. Although Mercy does not require its employees to remain on or near its premises during their meal hours, the employees generally do. Elizabeth Feghali. Mercy's Chief Administrator, has asked us to research whether the value of the meal vouchers is taxable to the employees. Issues Identify the issue(s) raised by the facts. Be specific. The taxability of the meal vouchers depends on three issues: first, whether the meals are furnished "for the convenience of the employer"; second, whether they are furnished on the business premises of the employer". and third, whether the vouchers are equivalent to cash. Applicable Law Discuss those legal principles that both strengthen and weaken the client's case. Because the primary authority for tax law is the IRC begin with the IRC Section 119 provides that the value of meals is excludible from an employee's income if the meals are furnished for the convenience of, and on the business premises of the employer. [Discuss how administrative and/or judicial authorities exposed on statutory terms. Under Reg. Sec. 1.119-1, a meal is furnished for the convenience of the employer" if it is furnished for a substantial noncompensatory business reason." A "substantial noncompensatory business reason" includes the need to have the employee available for emergency calls during his or her meal period. Under Sec. 119/b/(4), if more than half the employees satisfy the "for the convenience of the employer" test, all employees will be regarded as satisfying the test. Regulation Sec. 1.119-1 defines business premises of the employer" as the place of employment of the employee. When discussing court cases, present case facts in such a way as to enable the reader to draw an analogy with client facts. A Supreme Court case, Comm.. Kowalski, Robert ... 40 AFTR 2d 77-6128, 77-2 USTC 49748 (USSC, 1977), discusses what constitutes "meals" for purposes of Sec. 119. In Kowalski, the State of New Jersey furnished cash meal allowances to its state troopers to enable them to eat while on duty. It did not require the troopers to use the allowances exclusively for meals. Nor did it require them to consume their meals on its business premises. One trooper, R.J. Kowalski, excluded the value of his allowances from his income. The IRS disputed this treat ment, and Kowalski took the IRS to Court. In Court, Kowalski argued that the allowances were excludible because they were furnished "for the convenience of the employer." The IRS contended that the allowances were taxable because they amounted to compensation. The U.S. Supreme Court took up the case and decided for the IRS. The Court held that the Sec. 119 income exclusion does not apply to payments in cash. Analysis The analysis should (a) apply applicable law to the facts and (b) address the issue(s). In this section, every proposition should be sup- ported by either authority, logic, or plausible assumptions.] Issue 1: The meals provided by Mercy seem to be furnished "for the convenience of the employer." They are furnished to have employ- ees available for emergency call during their meal breaks. This is a substantial noncompensatory reason within the meaning of Reg. Sec. 1.119-1. Issue 2: Although the hospital cafeteria appears to be the "business premises of the employer," MacDougal's does not appear to be. The hospital is the place of employment of the medical employees. MacDougal's is not. Issue 3: I applying case law to the facts, indicate how case facts are similar to/dissimilar from client facts. If the analysis does not sup port a "yes-no" answer, do not give one. Based on the foregoing authorities, it is unclear whether the vouchers are equivalent to cash On the one hand, they are redeemable only in meals. Thus, they resemble meals-in-kind. On the other hand, they are redeemable at more than one institution. Thus, they resemble cash. Nor is it clear whether a court deciding this case would reach the same conclusion as the Supreme Court did in Kowalski. In the latter case, the State of New Jersey provided its meal allowances in the form of cash. did not require its employees to use the allowances exclusively for meals. Nor did it require them to consume their meals on its business premises. In our case, Mercy provides its meal allowances in the form of vouchers. Thus, it indirectly requires its employees to use the allowances exclusively for meals. On the other hand, it does not require them to consume their meals on its business premises. Conclusion The conclusion should (a) logically flow from the analysis, and (b) address the issue(s). Although it appears that the meals acquired by voucher in the hospital cafeteria are furnished "for the convenience of the employer" and "on the business premises of the employer, is unclear whether the vouchers are equivalent to cash. If they are equivalent to cash, or if they are redeemed at MacDougal's, their value is likely to be taxable to the employees. On the other hand, if they are not equivalent to cash, and they are redeemed only in the hospital cafeteria, their value is likely to be excludible. Tax Research File As mentioned in Chapter C:1 the tax research process entails six steps. 1. Determine the facts 2. Identify the issues 3. Locate applicable authorities 4. Evaluate these authorities 5. Analyze the facts in terms of applicable authorities 6. Communicate conclusions and recommendations to others. A-6 Individuals Appendix A Memorandum-to-the-File Date: December 9, 20X1 From: Rosina Havacek Re: The taxability of meal vouchers furnished by Mercy Hospital to its medical staff. Facts State only the facts that are relevant to the Issue(s) and necessary for the Analysis. Our client, Mercy Hospital "Mercy" ), provides meal vouchers to its medical employees to enable them to remain on emergency call. The vouchers are redeemable at Mercy's onsite cafeteria and at MacDougal's, a privately owned sandwich shop. MacDougal's rents business space from the hospital. Although Mercy does not require its employees to remain on or near its premises during their meal hours, the employees generally do. Elizabeth Feghali. Mercy's Chief Administrator, has asked us to research whether the value of the meal vouchers is taxable to the employees. Issues Identify the issue(s) raised by the facts. Be specific. The taxability of the meal vouchers depends on three issues: first, whether the meals are furnished "for the convenience of the employer"; second, whether they are furnished on the business premises of the employer". and third, whether the vouchers are equivalent to cash. Applicable Law Discuss those legal principles that both strengthen and weaken the client's case. Because the primary authority for tax law is the IRC begin with the IRC Section 119 provides that the value of meals is excludible from an employee's income if the meals are furnished for the convenience of, and on the business premises of the employer. [Discuss how administrative and/or judicial authorities exposed on statutory terms. Under Reg. Sec. 1.119-1, a meal is furnished for the convenience of the employer" if it is furnished for a substantial noncompensatory business reason." A "substantial noncompensatory business reason" includes the need to have the employee available for emergency calls during his or her meal period. Under Sec. 119/b/(4), if more than half the employees satisfy the "for the convenience of the employer" test, all employees will be regarded as satisfying the test. Regulation Sec. 1.119-1 defines business premises of the employer" as the place of employment of the employee. When discussing court cases, present case facts in such a way as to enable the reader to draw an analogy with client facts. A Supreme Court case, Comm.. Kowalski, Robert ... 40 AFTR 2d 77-6128, 77-2 USTC 49748 (USSC, 1977), discusses what constitutes "meals" for purposes of Sec. 119. In Kowalski, the State of New Jersey furnished cash meal allowances to its state troopers to enable them to eat while on duty. It did not require the troopers to use the allowances exclusively for meals. Nor did it require them to consume their meals on its business premises. One trooper, R.J. Kowalski, excluded the value of his allowances from his income. The IRS disputed this treat ment, and Kowalski took the IRS to Court. In Court, Kowalski argued that the allowances were excludible because they were furnished "for the convenience of the employer." The IRS contended that the allowances were taxable because they amounted to compensation. The U.S. Supreme Court took up the case and decided for the IRS. The Court held that the Sec. 119 income exclusion does not apply to payments in cash. Analysis The analysis should (a) apply applicable law to the facts and (b) address the issue(s). In this section, every proposition should be sup- ported by either authority, logic, or plausible assumptions.] Issue 1: The meals provided by Mercy seem to be furnished "for the convenience of the employer." They are furnished to have employ- ees available for emergency call during their meal breaks. This is a substantial noncompensatory reason within the meaning of Reg. Sec. 1.119-1. Issue 2: Although the hospital cafeteria appears to be the "business premises of the employer," MacDougal's does not appear to be. The hospital is the place of employment of the medical employees. MacDougal's is not. Issue 3: I applying case law to the facts, indicate how case facts are similar to/dissimilar from client facts. If the analysis does not sup port a "yes-no" answer, do not give one. Based on the foregoing authorities, it is unclear whether the vouchers are equivalent to cash On the one hand, they are redeemable only in meals. Thus, they resemble meals-in-kind. On the other hand, they are redeemable at more than one institution. Thus, they resemble cash. Nor is it clear whether a court deciding this case would reach the same conclusion as the Supreme Court did in Kowalski. In the latter case, the State of New Jersey provided its meal allowances in the form of cash. did not require its employees to use the allowances exclusively for meals. Nor did it require them to consume their meals on its business premises. In our case, Mercy provides its meal allowances in the form of vouchers. Thus, it indirectly requires its employees to use the allowances exclusively for meals. On the other hand, it does not require them to consume their meals on its business premises. Conclusion The conclusion should (a) logically flow from the analysis, and (b) address the issue(s). Although it appears that the meals acquired by voucher in the hospital cafeteria are furnished "for the convenience of the employer" and "on the business premises of the employer, is unclear whether the vouchers are equivalent to cash. If they are equivalent to cash, or if they are redeemed at MacDougal's, their value is likely to be taxable to the employees. On the other hand, if they are not equivalent to cash, and they are redeemed only in the hospital cafeteria, their value is likely to be excludible