This is related to a state level only audit. Do u think it will also trigger a federal audit. My friend didn’t have a checking acct for direct deposit so I let him use mine
You need really good documentation. And it will depend on the auditor. Get a letter from your friend. Get an accounting statement from your friend showing their income that came from your account. Prepare a copy of your bank statements noting which deposits and withdrawals are pass-through money for your friend. Any chance this was by check or money order and you have receipts or copies? Or just cash. Can you document from the payor/depositor that the money was for your friend? If the Uber account is in your friend's name and you never drove for Uber, that may help. If you also drove for Uber you will have a much harder time separating the money.
You should never have mixed your business account with your friend's money. If it was really necessary to do this, you should have had a separate account just for your business, and run your friends money through your personal account or through a third account.
You are very exposed here. If the amounts are large you may want legal representation. The state auditor may not buy your explanation and there is not much you can do if they don't--generally you have the burden of proving the money is not your income. Just be as thorough, detailed, and honest as you can.