We may try to fight this as we purchased the property specifically because there were no rental restrictions when we purchased, and this will significantly affect our financial situation with the property.

On paper this reading of the reg is unenforceable but if you have a neighbor problem & the city comes after you using this post hoc application of an old law having nothing to do with STR - someone eventually has to pony up the cash to fight the city. 

They are trying to fight it but won't win.

And they know this low amount of money lawyers wont go after so it’s either we take the loss and it is what it is or we fight them about it.

Quote from @Jay Hinrichs: tax attorney told me we would lose.Water under the bridge now, but as someone with almost 30 yrs experience of fighting the IRS, I disagree with your tax attorney 

If the Tenant has a dispute, they fight with the Landlord, not Obligo.

Therefore, the rate increases cannot address a primary source of inflation, but the fed has few tools available to fight inflation and raising rates is their primary tool to fight inflation. 

By the time that you provide your notice and file an eviction lawsuit, the tenant fights back, you have a hearing, etc... you're going to spend more than a month anyway.  

Create a desire to choose your home over the other 10's of thousands and you won't be fighting (as hard) to get your unit booked and noticed.

Even paying a lawyer and a cap to fight the irs could cost more than the commission.