Petitioner claims that he was engaged in the trade or business of a venture capitalist or business promoter and that the loans and advances that he made to Color Trick were made in the course of that trade or business. Petitioner, however, has not established that he was engaged in the trade or business of promoting corporations in addition to his medical1996 Tax Ct. Memo LEXIS 232">*243 practice. We note that petitioner's medical practice was his primary occupation, to which he devoted approximately 40 to 50 hours per week, excluding vacations. Additionally, petitioner admitted that he was not in the business of lending money when he began advancing funds to Color Trick. Moreover, nothing in petitioner's Federal tax returns that are in the record indicates that he earned income from rendering services as a promoter. Although petitioner claims that he had a reputation in his community as a promoter, there is little evidence in the record to support that claim, and the absence of any indication that petitioner was separately compensated for his activities renders that evidence unpersuasive. 73 T.C. 1081">Deely v. Commissioner, supra at 1096.

Petitioner points to his activities outside his medical practice to show that he was engaged in the trade or business of being a business promoter, but the activities do not indicate that petitioner was in that trade or business. Although petitioner was involved in building and selling houses on speculation prior to his dealings with Color Trick, the record does not indicate how he was compensated for his 1996 Tax Ct. Memo LEXIS 232">*244 efforts, that is, whether he received compensation directly for his services, or indirectly through the success of the ventures. Moreover, that activity had ceased in 1984 or 1985, and it therefore does not indicate that petitioner was involved in a business of developing properties for quick sale during 1987, when he became involved with Color Trick. Petitioner's other activities, such as his ownership of an apartment building and his investment in Cinevision, do not indicate that he engaged in promoting corporations for a fee or commission or for the profit to be derived from quickly selling them after they were established. Rather, petitioner appears to have sought long-term returns from his ownership interests, which is the hallmark of the investor. 73 T.C. 1081">Deely v. Commissioner, supra.Although petitioner was actively involved in the management of the apartment building, there is no evidence he was directly compensated for his services. Moreover, it does not appear that he planned to sell the apartment building once it became established; rather, he sold it as a result of his divorce proceedings.

Similarly, petitioner apparently sought a return from1996 Tax Ct. Memo LEXIS 232">*245 Cinevision in the form of enhanced value of his investment, rather than from direct compensation for his services to the corporation. Petitioner, moreover, reported the income or loss connected with Cinevision as passive income or loss on his 1987 through 1989 returns. Petitioner's activities with respect to Cinevision, which consisted of meetings with its management to discuss its difficulties, appear no different from those of an investor seeking to protect his investment. As we discuss below, we reach the same conclusion with respect to petitioner's activities in connection with Color Trick.

The record is also devoid of evidence of other indicia of a business of promoting corporations, such as the active seeking out of opportunities to promote corporations, advertising, the maintenance of a separate office or books of account for such a business, or the preparation of statements of profit and loss from corporate promotion activities. United States v. Henderson, 375 F.2d 36">375 F.2d 36, 375 F.2d 36">41 (5th Cir. 1967).

Accordingly, we conclude that petitioner was not in the trade or business of promoting corporations. Moreover, even if petitioner were engaged in a promoting1996 Tax Ct. Memo LEXIS 232">*246 business, we would not conclude that the business encompassed his activities regarding Color Trick. Petitioner's activities in connection with Color Trick were more consistent with those of an investor rather than those of a business promoter. Petitioner's loans and advances to Color Trick were used to finance its operations and to purchase equipment, which furthered Color Trick's business. Petitioner's rendering of advice and making advances to Color Trick did not in themselves amount to a promotion of the corporation. United States v. Clark, 358 F.2d 892">358 F.2d 892, 358 F.2d 892">895 (1st Cir. 1966).

Furthermore, petitioner's testimony indicates that the only return he expected for his investments in Color Trick was from dividends or the long-term enhancement of his share holdings generated from the profits to be derived from the success of Color Trick's business. Petitioner may also have hoped to share in any recovery from a lawsuit against A.B. Dick in connection with a license it was granted to market the process. Petitioner further appears to have expected some return from the exploitation of the patent once A.B. Dick's licensing agreement was dissolved in connection 1996 Tax Ct. Memo LEXIS 232">*247 with the litigation. Petitioner took no salary from Color Trick, and there is no evidence that he expected or was entitled to any direct compensation for his services. Although petitioner contended that he did not do so because of Color Trick's financial problems, there is no evidence that he was owed any salary for his services or that he deferred collecting any salary due him. We conclude from the record as a whole that petitioner expected only an investor's return from Color Trick in the form of dividends or long-term enhanced value of his shareholdings.

It does not appear that petitioner planned to sell Color Trick quickly once it became established. Indeed, there is some question whether the business could have been sold, because Leland Prentice was allowed to use his process in only two locations but was not allowed to market it. Rather, an effort was made to sell the business only after petitioner decided that it would not be successful and that he could not continue financing it.

Petitioner also contends that he made advances to Color Trick in order to protect his business reputation after he had induced other physicians in the medical group to invest in Color Trick. ³ As1996 Tax Ct. Memo LEXIS 232">*248 noted above, we cannot conclude from the record in the instant case that petitioner had a reputation as a business promoter. It appears to us that, in making the advances, petitioner's motivation was to protect his reputation as an investor. Petitioner also contends that he made advances to Color Trick in an effort to protect the investments of the other physicians who had loaned money to Color Trick. Advancing money to a corporation to protect the investments of others, however, is an indication that the taxpayer is not a promoter. 358 F.2d 892">United States v. Clark, supra at 896.

Petitioner also contends that his advances and loans to Color Trick exceeded his initial investment in its stock by 60 times and that this 1996 Tax Ct. Memo LEXIS 232">*249 circumstance indicates the lack of an investment motive for the loans and advances. We do not consider the circumstance pointed to by petitioner indicative of the lack of an investment motive given that petitioner (1) acquired additional stock in Color Trick during 1988 and 1989, (2) held 60 percent of its stock by the end of 1989 and (3) was not entitled to compensation for his services to Color Trick. It seems quite plausible to us that petitioner's loans and advances were made to protect his increasing and substantial equity stake in the corporation.

Based on our consideration of the entire record in the instant case, we hold that petitioner's loans and advances to Color Trick, which became worthless in 1989, are nonbusiness bad debts. Whipple v. Commissioner, 373 U.S. 193">373 U.S. at 203-204; United States v. Byck, 325 F.2d 551">325 F.2d at 554-555; Deely v. Commissioner, 73 T.C. 1081">73 T.C. 1092-1093.

Petitioner alternatively contends that he is entitled to claim, pursuant to section 1244, an ordinary loss of $ 50,000 due to the worthlessness of his stock in Color Trick. ⁴ Section 165(g) provides generally that the loss1996 Tax Ct. Memo LEXIS 232">*250 resulting from the worthlessness of a security (including stock) that is a capital asset is capital in nature, and the allowability of such a loss consequently is governed by the provisions of section 1211(b). The allowable amount of the loss is the adjusted basis of the security provided in section 1011 for purposes of determining the loss from the sale or other disposition of property. Sec. 165(b).

1996 Tax Ct. Memo LEXIS 232">*251

Section 1244(a), however, allows an individual taxpayer to treat a loss from "section 1244 stock" as an ordinary loss where it would otherwise be treated as a loss from the sale or exchange of a capital asset. As relevant to the instant case, the aggregate amount of the loss that may be treated as an ordinary loss pursuant to section 1244 cannot exceed $ 50,000. Sec. 1244(b). The term "section 1244 stock" is defined to mean stock of a domestic corporation where: (1) At the time of the stock's issuance, the corporation had not received money or other property in excess of $ 1 million for its stock, as a contribution to capital, or as paid-in surplus; (2) the stock was issued for money or other property (other than stock or securities); and (3) the corporation during its most recent 5 taxable years (or, if less, the period during which the corporation has been in existence) derived more than 50 percent of its aggregate gross income from sources other than royalties, rents, dividends, interest, annuities, and sales or exchanges of stocks or securities. The third test, however, does not apply where the amount of deductions allowed exceeds the amount of the corporation's gross income. 1996 Tax Ct. Memo LEXIS 232">*252 Sec. 1244(c). The Commissioner is empowered to prescribe the regulations necessary to carry out the purposes of section 1244. Sec. 1244(e). Pursuant to that authority, the Commissioner has issued regulations requiring a taxpayer to have records sufficient to establish that the taxpayer is entitled to the loss and satisfies the requirements of section 1244. ⁵Sec. 1.1244(e)-1(b), Income Tax Regs. We have held that strict compliance with the requirements of section 1244 and the regulations issued pursuant to it is necessary to obtain the benefits of the section. Mogab v. Commissioner, 70 T.C. 208">70 T.C. 208, 70 T.C. 208">212 (1978); Morgan v. Commissioner, 46 T.C. 878">46 T.C. 878, 46 T.C. 878">889 (1966).

1996 Tax Ct. Memo LEXIS 232">*253 Petitioner contends that he received certain stock in Color Trick that previously had been held by each of Leland Prentice and his wife and/or Stanley Prentice and his wife in exchange for repaying a $ 110,000 debt of Color Trick. ⁶ Petitioner bases his claim of a section 1244 loss on that transaction. Petitioner, however, has not established his basis in his Color Trick stock for purposes of computing the amount of his loss pursuant to section 1244. Petitioner testified that he did not receive additional stock in Color Trick for the money he advanced to it, but that the shares were "kickers". Elsewhere on brief, petitioner treats only his $ 5,000 payment for his initial purchase of Color Trick's stock as the amount of his investment in its stock. Petitioner has not attempted to reconcile the inconsistency of his positions at trial and on brief with his section 1244 claim.

1996 Tax Ct. Memo LEXIS 232">*254 Furthermore, Color Trick was an S corporation, and, consequently, the losses that were passed through to petitioner reduced his basis in its stock. Sec. 1367(a)(2). The basis-adjustment rules of section 1367 are applied before application of sections 165(g) and 166(d) in a taxable year of the shareholder in which a security or debt becomes worthless. Petitioner does not dispute that, on its 1987, 1988, and 1989 returns, Color Trick reported losses of $ 45,263, $ 214,910, and $ 138,267, respectively. On his returns for 1987 through 1989, petitioner claimed losses in connection with Color Trick totaling $ 130,391. Petitioner has not shown that there was any basis remaining in his Color Trick stock after taking into account the foregoing losses claimed on his returns that would enable him to claim a loss with respect to its worthlessness.

Additionally, petitioner contends that many records pertaining to Color Trick were dispersed after Color Trick ceased operations. We note, however, that the loss of records does not alter petitioner's burden of proof, but, in such a case, we shall consider credible secondary evidence. Malinowski v. Commissioner, 71 T.C. 1120">71 T.C. 1120, 71 T.C. 1120">1125 (1979).1996 Tax Ct. Memo LEXIS 232">*255 Petitioner relies on certain documents of Color Trick (viz, its articles of incorporation and minutes of shareholders' meetings), certain testimony, and certain of his Federal income tax returns to establish his entitlement to a section 1244 loss. Certain other records, however, have not been offered by petitioner, such as his stock certificates or the stock transfer records of Color Trick. We do not accept the statements in petitioner's Federal income tax returns as proof of the facts asserted by petitioner. A tax return is merely a statement of the taxpayer's claim and does not establish the truth of the matters set forth therein. Wilkinson v. Commissioner, 71 T.C. 633">71 T.C. 633, 71 T.C. 633">639 (1979); Roberts v. Commissioner, 62 T.C. 834">62 T.C. 834, 62 T.C. 834">837 (1974); Halle v. Commissioner, 7 T.C. 245">7 T.C. 245, 7 T.C. 245">247-248 (1946), affd. 175 F.2d 500">175 F.2d 500 (2d Cir. 1949). Accordingly, we hold that the evidence on which petitioner relies is insufficient to establish his entitlement to the benefits of section 1244. Moreover, petitioner has failed to maintain records sufficient to establish that he is entitled to the loss1996 Tax Ct. Memo LEXIS 232">*256 claimed with respect to his stock in Color Trick and that he satisfies the requirements of section 1244. Sec. 1.1244(e)-1(b), Income Tax Regs.

Accordingly, we hold that petitioner is not entitled to claim an ordinary loss pursuant to section 1244 in connection with the worthlessness of his stock in Color Trick.

To reflect the foregoing and concessions,

Decision will be entered for respondent.