This makes spelling out those details a requirement, not only for clarification but also for the IRS if audited.  

Everything is fine until you're audited and saving on the CPA fee isn't worth the future headaches (or so I've been told by my clients).

Oddly, until just 3 months ago, the IRS could call you to inform you that you were under audit, but a letter would always be sent subsequently.  

Great info above and an important reason to make sure that you audit all leases during your DD period.

Having said that, in an audit or IRS challenge, the decision is all going to turn on your intent at the time you purchased the property you are considering converting to your primary residence.

All of my negotiators recommend a deal after an exhaustive financial analysis and after verifying that all the requirements of a short sale are met (Like being listed with an agent, executing a 4506T, providing a hardship letter, bank statements, tax returns, Arms Length affidavit, budget, etc..) and then signing off and verifying all of the requirements are met so that when its all done, a subsequent audit from an outside entity or regulatory agent will confirm that it was done properly and NOT just because some talented negotiator thinks it should have been done.

It's worth it to me because I get to avoid filing a Schedule E which are heavily audited.

I'd probably start with seeing if you could find a commercial general liability that would cover all aspects of your businesses, if that's obtainable, then you won't be paying insurances "per job" so to speak, and the rating factors (gross revenue/payroll) would be fine because you won't be getting audited on something that you didn't use.

The bottom line is this: if you get audited and present this article to the IRS as to why you did what you did - it will have no significant whatsoever.

But so many are talking about "flipping" these days and I think there is legitimate concern when an investor is using this vocabulary that even if they hold over a year there is a risk of them being perceived as dealers not holding property for productive use.As with most everything these days, due to the relatively few number of audits there isn't a great bank of case law yet on "flippers" who hold property over a year.