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Petitioner is a painter by trade. He quit school after the
eighth grade, and he began painting in 1951 as an apprentice.
He started his own painting company in 1963, and he has either
managed or comanaged his businesses since that time, performing
all functions of an entrepreneur including marketing his services
and supervising his employees. During the relevant time, he
owned 90 percent of the stock of Elliott Painting Co. (EPC),
which he had organized in 1972 to incorporate his painting
business, and he was EPC's president, one of its directors, and
one of its employees. EPC filed for bankruptcy and went out of
business in 1985. The bankruptcy court closed the case in
November 1988.
On August 12, 1983, Kansas American Bank (the Bank) lent EPC
$500,000 (the Loan). The Loan was guaranteed by the U.S. Small
Business Administration (SBA) and by petitioner, both personally
and in his capacity as president of Electro-Magnetic Refinishers,
Inc. (EMR), a corporation in which he owned 39 percent of its
stock. In connection with the Loan, petitioner, in his capacity
as EPC's president, signed a $500,000 note drafted on an SBA form
and bearing an SBA loan number, and EPC gave the Bank a security
interest in EPC's accounts receivable, inventory, machinery,
equipment, and furniture and fixtures. At the behest of the
Bank, petitioner, in the names of "Herbert Elliott", "Herbert E.
Elliott", and "Herbert C. Elliott", also personally signed a
$500,000 note (Petitioner's Note) and a deed of trust on three
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