I have a background in quality assurance and regulatory compliance as well as a law degree (not licensed YET!).

@Sean WaltonI recommend you contact @Bernard Reisz, who works with many custodians to implement Checkbook Control SDIRA accounts and is an expert in SDIRA/401k compliance.

A couple friends have invested in one of the flips and we are concerned about the legitimacy of this business structure and tax code compliance.  

The situation to which the law, regulation or rule must be modified or changed so that compliance is not necessary.

Check with your state financing authroity or regional HUD office (in the compliance section).

Always apply your criteria to everyone, including the app fee, and you will be in compliance with fair housing for the most part.  

When you say you will be the syndicator, I think keep your own IRA away.I personally would stay away from what you are heading towards, but if you want to work closely with a tax attorney who specializes in this area, you may be able to proceed with some structure that creates reasonable confidence of compliance  (but not 100% certainty).

I will post some compliance resources below...Business Operations Tax (BOT)If your property falls within the Sacramento city limits, in order to operate your property as a short term rental, you will be required to have a Business Operations Tax account with the city.

Upon reading that bulletin I would sit down with my compliance manager and issue an edict NO working with suspected wholesalers or flippers..

I really suggest people see an attorney and not take ideas off the internet, if someone is not an attorney or they have no regulatory background in finance or they are not actively specializing in financial compliance matters, licensed as required, they aren't qualified and everyone else is just shooting air.