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Prior to 1980, petitioner was in the banking business. He
served as president and executive vice president of the First
National Bank of San Marcos, Texas, from July 1973 until August
1980. After terminating his employment with the bank, petitioner
became involved in the oil and gas business. He formed a number
of partnerships and joint ventures with various individuals.
National Resources Oil Co. (NROC)
NROC was formed pursuant to the Texas Uniform Partnership
Act by petitioner, Wilbur Wood (Wood), and Carlos Klutts
(Klutts). Initially, NROC was involved in drilling and operating
oil and gas wells for various partnerships and joint ventures
formed by petitioner and his business associates. Petitioner had
financial responsibilities as well as operational responsi-
bilities for NROC. Petitioner withdrew $10,000 per month as a
draw from the partnership.
NROC drilled approximately 80 to 90 wells in the Luling,
Texas, area. Of these, approximately 36 wells were drilled and
operated for seven partnerships formed by petitioner, Klutts,
Wood, and other individuals.
During 1980, NROC was experiencing difficulties in obtaining
pipe, tubing rods, pump jacks, and other oil and gas inventory
due to the high demand for such products. To finance its
purchases of inventory, NROC and its partners entered into a
series of loan transactions with First State Bank of Weimar
(Weimar Bank), resulting in an aggregated indebtedness on October
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