Dan going forward I will not work with Touchpoint Property Management especially since they find it inconvenient to follow the rules and regulations that have been in place since 1984 and insist on insulating the Board and its members including me.

Would also like to know if there are any local state/ zoning/ tax regulations or restrictions with this type of investment? 

As Michele suggests you must learn your state regulations.

I sense they will want to regulate it lightly and tax it appropriately. 

That Section 8 estimate was lower than the section 8 website stated, but I am intending on contacting the housing authority to verify what the landlord regulations and what they would be willing to pay for said home in the area. his original asking price was $35k, I've slowly worked him down to this point. upon more investigating it looks like the median home price for the area is around $40k, so I am wary about repairs. 

I have a written guarantee from the BC side to purchase the property, now I know the word guarantee in this business is just that a word...lol But my BC buyer is a Regulation D fund that has committed to buying the property way before I even found it.

Learn the local and federal regulations .This is extremely important for landlords .

I have been searching online, but can’t find any law or regulation that explains this.

I thought those revenue rulings you mentioned were superseded by more recent Treasury regulations (TD 9107). 

Dev,Yes there are a lot of regulations in Palm Springs and neighboring Palm Desert.