09. Audit Triggers & Best Practices
Audit Triggers & Best Practices
The Augusta Rule can save thousands — but it’s also prone to IRS challenge when improperly documented or abused.
This page outlines common audit risks and how to protect yourself.
🔺 Common IRS Triggers
These are the red flags that have triggered audits in real cases:
❌ Exceeding the 14-day rental limit
❌ Failing to create or sign a written rental agreement
❌ Using inflated rental rates with no market support
❌ Renting for events with no business agenda
❌ Mixing with a home office deduction
❌ Using the home for entertainment, parties, or social gatherings
❌ Issuing payment from a personal account instead of the business
❌ Receiving a 1099-MISC and not reporting or offsetting it properly
❌ Failure to document the business purpose clearly
📌 IRS applies a “substance over form” test:
If it looks like a personal benefit in disguise, they will disallow the deduction and tax the income.
✅ Audit-Proofing Tips
Rental Rate
Save 3+ market comps. Create a comparison worksheet.
Rental Agreement
Signed in advance. Includes dates, rate, purpose, parties.
Agendas
Typed, with timestamps, topics, attendees.
Invoices
Clearly state: “Rental of personal residence per IRC §280A(g)”
Payment
Sent via business check or ACH. No cash or Venmo.
Recordkeeping
Retain all documents for 7 years.
🧾 What to Keep on File:
📑 Rental agreement
🗓️ Calendar or log showing rental days
📄 Agenda and attendee list
💳 Proof of payment
🧾 Invoice with rate breakdown
🏨 Screenshots or PDFs of comparable rental rates
✍️ Board minutes (if S-Corp or Partnership)
🧠 Best Practices Summary
✅ Treat the transaction like you would with a third party
✅ Match rates to real comps — don’t make them up
✅ Avoid the home office deduction for the same room
✅ Don't blend personal and business use of the space
✅ Keep clean records — you’ll forget next year if you don’t
🧷 If in doubt, over-document. That’s your best audit defense.
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