Please answer the following questions including authority and reasoning.

1. (a). Sam was shot and killed during a robbery at his bar. His wife, Diane, was the beneficiary of his $200,000 whole life insurance policy. Diane collected the $200,000 face value of the policy from the insurance company. Does she realize gross income from this transaction?

(b). Instead, suppose Diane exercises an option in the policy to receive interest payments on the $200,000 for the remainder of her life (an amount estimated to be $10,000 annually), with the principal of the policy to be paid to her daughter upon Diane’s death. Must the daughter include the $200,000 principal in her income?

(c). What if Diane elects to receive an annuity of $14,000 a year? Assume her life expectancy is 20 years and there is no refund if Diane dies before receiving full payment.

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