I've taken CPE from different sources on this and there doesn't seem to be a right answer.  In reality it probably depends on how much sleep the auditor got the night before or if they got stuck in traffic on the way to work in the morning.

I've been told that personal knowledge can NOT be relied upon as part of the tax engagement, which frankly is completely ridiculous.  I *know* these kids live with their parents, I've been to dinner at their houses, birthday parties, etc. but instead of that first-hand knowledge the IRS really just wants to know if you're telling them the same lies that you're telling the school board or the doctor's office. <shrug>

I've also been told that an organizer questionnaire is not sufficient to establish due diligence.  So I go through the same series of ridiculous questions with clients (usually by phone) every year for the purpose of documenting when/where I asked the question and what their response was.

A few years ago I thought about making an interactive tool online for this but I ended up too far down the rabbit hole with things like "how do you prove that you're NOT married?"  If I can't even get past filing status the rest is hopeless.

Rick