In a recent field attorney advice memorandum, the IRS advised that the taxpayer was not entitled to a tax credit under Section 45 because the taxpayer was not a bona fide partner in the business under the sham partnership doctrine.  The transaction involved a single-member LLC and an entity formed to own and operate a facility for the production of refined coal.  Under this agreement, the LLC was obligated to make future investments that were contingent on the amount of coal produced.  Applying the reasoning in Historic Boardwalk Hall LLC v. Commissioner, the IRS concluded that the LLC lacked significant downside risk or significant upside potential in its connection with a coal refinery operation and the partnership should therefore be disregarded as a sham.  Rob Kovacev, partner in Steptoe’s Washington office, commented: “The release of this advice confirms that the IRS is undertaking an aggressive enforcement drive concerning Section 45 energy tax credits.  Taxpayers engaged in such transactions should expect increased IRS scrutiny, even if those transactions follow industry standards and comply with the statutory requirements of Section 45.”