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Martha R. Gulley) from August 1965 to September 1992.
Petitioners used the cash method of accounting.
B. GSD, Ltd.
1. Formation and Ownership–-1984 to 1987
In November 1984, petitioner, Jeffrey Schlesinger
(Schlesinger), J. Russell Davis (Davis), and Thomas J. Smith
(Smith) formed GSD, Ltd., a Texas limited partnership, to
acquire, own, operate, improve, maintain, and lease 1,850 acres
in Bexar County, Texas, known as the Encino Park project (Encino
Park). GSD used the accrual method of accounting.
Petitioner was the sole general partner of GSD. He
contributed an earnest money contract for the purchase of Encino
Park in exchange for a 60-percent general partnership interest in
GSD. GSD’s limited partners were Schlesinger, who owned a 30-
percent interest; Davis, who owned a 9-percent interest; and
Smith, who owned a 1-percent interest.
2. The Sunbelt and Western Savings Loans
In 1984, GSD sought to buy Encino Park for $64,286,008. In
November 1984, GSD negotiated with Sunbelt Service Corp.
(Sunbelt) and Western Savings Association (Western Savings) to
borrow the money to buy Encino Park. On November 29, 1984,
petitioner and Schlesinger guaranteed a $50 million loan from
Sunbelt to GSD, and petitioner signed (as GSD’s general partner)
a promissory note payable to Sunbelt (the Sunbelt note). The
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