Your client has a variable universal life policy with a cash value of $$150,000.$ Their basis in the account is $$70,000$ and they have utilized a loan equal to $80\%$ of the cash value. The loan has yet to be repaid, they are in the $22\%$ marginal tax bracket, and the policy also contains a $10\%$ surrender charge equal to the gross cash value of the policy. The policy unfortunately lapses. What is the net effect for your client?

A$)$

$$15,000$ net surrender cash value with $$17,600$ in long$-$term capital gains taxes due

B$)$

$$30,000$ net surrender cash value with $$3,300$ in ordinary income taxes due

C$)$

$$30,000$ net surrender cash value with $$17,600$ in short$-$term capital gains taxes due

D$)$

$$15,000$ net surrender cash value with $$17,600$ in ordinary income taxes due