1 - This is for tax year 2017 - this makes it all the puzzling that the IRS would have mentioned the Tax Cut and Jobs Act passed in December of 2017, because nearly all of its provisions took effect on January 1, 2018, for tax year 2018, not 2017.
2 - My wife and I are an LLC with no employees so we file via Schedule C - I assume that you two live in a community property state so you can treat your LLC as a sole proprietorship (i.e., Schedule C). However, it seems that your spouse also works for the LLC; in this case, you two would file two Schedule Cs, with the business's income and expenses divided between you. This is so each of you gets the appropriate credit for Social Security and Medicare taxes paid (this is what the self-employment taxes are).
3 - We both take the FAM as we are both registered agents via IATA - See the note about two Schedule Cs above.
4 - I believe we were flagged as we had a loss for 2017 and the bulk of the expenses were travel-related (as you would expect from a travel agency) - It's difficult to know why you were audited, given that so many are at random. However, maglib above may be correct that too many Schedule C losses may have triggered it.
5 - We're taking your advice and seeking help from a CPA to contest the IRS charges - Good.
6 - Any other thoughts or suggestions? Since you are seeking local competent advice, I will bow out at this point. Since I assume your local tax professional will ask to see your three previous tax returns (at least), he/she will be able to see much more detail than we can on this forum.
Good luck!
