How much of Bob's cash value from his life insurance policy is considered taxable if he surrenders it?

When evaluating the tax implications of surrendering a life insurance policy, it is important to understand how the cash value is treated under IRS regulations. The taxable amount is calculated based on the cash value received upon surrender minus any premiums that were paid into the policy.

In this case, if Bob's cash value upon surrender is $3,000 and he has paid $1,000 in premiums, the taxable portion is determined by subtracting the premiums from the cash value. Therefore, Bob would have $3,000 (cash value) - $1,000 (premiums paid) = $2,000 that is considered taxable income.

This reasoning aligns with the tax treatment of life insurance, where the gain is taxable when the total cash value received exceeds the total premiums paid into the policy. The options reflect varying scenarios of cash value and premium amounts, but the correct taxable amount in this case is indeed represented by $2,000, making it the right answer.