The properties in the subdivision are quite snug together and on the auditor site and deed it shows that the property line splits right up my neighbors driveway.

You can look up mortgages on properties on your local county auditor sites....Don't make these mistakes.

The auditor wanted copies of statements from every account and every property for two years.

Probably not a problem.I just went through an audit, mine is fairly complicated and the auditor wanted to see a few receipts but didn't seem to care where the money came from for particular items.

The accountants/cpa/tax preparers are so good, why do we need auditors???? 

2) If a tax return is audited in one year (lets say 2012) and its a comprehsive audit and rental properties lets say were purchased a few years earlier - is checking the cost basis of the properties when purchased part of the 2012 audit or do they just focus on all transction in 2012 and assume cost basis and other transactions reflected on earlier tax returns were recorded correctly - assuming they have no reason to believe that fraud was committed - just a normal tax audit.

The Auditor didn't buy it and disallowed the claim as RE professional. 

David at Anvil Tax used to be an IRS auditor and understands real estate. 

So I told the auditor we made no loans.. she described the above to me and said to me would you like to change your statement now.. and I said YUP.

I just checked.....looks like Clark county Auditor/recorder site (search function) is where you go online, but looks the site is currently down, maybe for maintenance.