Why would an amended return from SCH E to SCH C be "a pretty good bet" for an audit in your opinion?
Keep in mind this is an "opinion" that you asked for.
When you've been reporting your rental income correctly on SCH E and then switch to SCH C, most of the time this is done so that the amount of social security paid is increased, and so the amount that can be contributed to a traditional or ROTH IRA retirement account can be increased, thus increasing the amount paid out by SS at retirement time, and decreasing the taxable income received in the year the income is reported on SCH C (because of your increased contribution to your traditional or ROTH IRA). This may have the potential to raise possible "fraud" flags which if it does, would trigger an audit.
If one is using a management company to manage the rental property, the management company typically issues the property owner a 1099-MISC every year, with the amount of rental income paid to/received by the owner reported in box 2 of that form. The issuer of the 1099-MISC also sends that information to the IRS. When IRS computers are doing cross-checks, they'll see that you were paid passive rental income. However, they'll also see that passive income is not reported by you on SCH E. I would expect that to trigger an audit for unreported income, at which time the burden of proof is on you to prove it qualifies as SCH C income.
