The Augusta Rule (Section 280A of the tax code) allows homeowners to rent out their property for up to 14 days without having to report the rental income.

Narrow your focus to a specific city, ZIP code, or a few neighborhoods.

Secondly, an additional third unit requires either a zoning variance or special use permit on your local code, aldermanic approval notwithstanding.

I ran into this issue when I initially started learning about long distance investing and I created www.zipfinder.co which aggregates a wide range of data on a zip code level to help streamline the research process for investors. 

Was it permit issues (work done without permits), code violations, or something structural?

We also use the tax code to our advantage; deductions of property taxes, mortgage interest, expenses of our property and depreciation.

Generally there aren't huge "loopholes" to let you avoid things in the tax code.

Your phrase "doesn't make sense" basically applies to the entire tax code.

Where in the tax code can we get more info about using the STR loophole in this example? 

Revised Code, specifically Chapter 5323,-------Designate an agent: The owner must designate an in-state agent for service of process.”