Have not heard from her for a couple of years & we did not get an audit YET.

@Christopher SmithAre you asking if this makes you a higher target candidate for an audit?

Talk about a hefty IRS bill on your thought-it-was-an-S-Corp LLC until audited.

You just keep all documentation with your files taxes in case you are ever audited.1099 requirements are another topic.

In other words, everything is possible without affecting the due on sale clause.Something else to add here, I'm going overboard but since you might be having a lot of looses you want to make your return audit-proof:You must materially participate to deduct any tax losses from your airbnb activity.Use of a management firm makes material participation less likely.Use of a management firm increases the possibility that you will not be involved in day-to-day activities, and that lack of involvement will cost you any claim of investor time for material participation purposes.The IRS questions whether drive time counts for material participation purposes, and the court in Toups denied drive time as material participation time.

I assume they will accept un-audited (self reported without 3rd party verification) for quarterly.  

Amending will also increase your audit risk. 

No annual requirements on audits or reviews of financials (save money from hiring CPA consultants).

Just like if your accountant does your taxes, there is no way the IRS will ever audit you and find you out of compliance. 

But the norm if it's audited is to assume that the 1031 was flawed.