Pay your attorney and your CPA for a customized advice. 

Current tenants are paying under $1k a month.

Personally I wouldn't feel comfortable trying to wholesale a relatives $1M home knowing that I am breaking the law if I cross over into doing anything that can be considered representing them in the transaction, and knowing it will only be marketed to people who buy properties wholesale (typically investors who don't want to pay retail prices), instead of the majority of retail buyers active in the market who are typcially willing to pay more. 

It will pay off. 

It said this is pursuant to tax code section 23.55It said I can protest in next 30 days1) Does this mean we have to pay taxes and interest for prior 3 years?

You can probably pay for a course when one of the sucker roadshows comes thru town, but it is a ton of money. 

Insurance would cover it, I would pay the deductible, and no assets would be lost.If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is expected to be higher, you may consider an umbrella insurance policy.

I wouldn't pay attention to anyone's "projected numbers".

Many groups buy cash flow negative deals and overraise to pay distributions right away. 

I have spoken with them a few times, they are unconcerned, and happy to have me just pay the interest every month until it converts.