That is $45B just for more audits. 

I am an engineer and not a CPA, but...I have recently gone through an IRS audit of 3 years of returns dealing with a handful of SFR's and one new STR.The STR was 360 mile R/T from my home at a Beach location. 

They audit banks sometimes and your bank may recall your loan, forcing you to pay back the entirety of the principal, or refinancing with a commercial loan.

@DongHui Patel which entity is being audited?

If the process if not followed in this chain, then the data will not be good and it take a lot of time and effort to fix it (trust me).For a 70 unit property, this should be easy to audit and maintain good accuracy.Send me a private message if you want a quick 2nd opinion on your CoA.

Do you have a system for auditing his expenses, and are you satisfied with his book keeping abilities?

Decide to wait for permission which will never come.Downside is that if she were ever audited and if the exchange were examined and if they determined that it was not valid she would end up paying the same tax and some back interest.  

I would still follow up with an accountant on the best way to be in compliance and avoid being flagged for an audit.

Is this enough, can I deduct, do I take the chance of being audited?

One risk I want to point out with Syndicates / CF is the financial rigor and due diligence.Public companies are audited by the SEC and produce quarterly reports; With direct-RE, you have title and money in the bank to audit.With syndicates / CF, you trust the sponsor to do financial due diligence and to not cheat you.IMO - based on the above pros/cons, it feels the public markets (either stock or REIT) are strictly better than syndicates / CF.