If you ever get audited a simple signed loan agreement would probably make your life much easier.  

The closing douments and contract as well as all other related documents must match for an audit trial.

This will look like a salary and you will chance an audit.

That inspection of work/billing verification will provide a very nice paper trail and documentation if ever required in an audit.

This way I have a paper trail proving where the funds were used if ever audited.

The critical issue is that under an audit you would have to demonstrate that you had the intent to hold the property for rental, investment of business use.  

@Georgui Kasaev in reference to your earlier question about franchising my service business: I have looked into it and was turned off when I found the cost of entry there is north of $50k in legal fees just to comply with franchise laws and be able to legally sell a franchise (franchise disclosure, operations manual, extensive audit level financial records, etc. ) Then one must offer marketing, office, etc support to franchisees.

What is the most proper approach in this situation and what would the IRS want to see in the event of an audit? 

Buyers are presented with information in a truly impartial way so they can best determine best markets to deploy their capital and invest.

If you SCOUR the FBI fraud website (an impartial source) then you will see that "the extent of short sale fraud nationwide is unknown" http://www.fbi.gov/stats-services/publications/mortgage-fraud-2009Michael, can you show us the Fannie Mae source that puts the covenants on a deed?