I think the correlation is only good for inlet velocities between 2-8 ft/s, which you are more than twice that. At 3 inches from the surface, at your velocity, a vortex is almost certainly going to form.
Placing the pump inlet much lower, the head loss should be minimal as it will be only the frictional loss of 1-2 feed of pipe (not 1-2 feet of head). For a closed loop system there will only be frictional losses, there is no static head (the pump inlet and outlets are under the same water level).
You should consider increasing your pipe sizes as the velocities are very high using 1.5" PVC pipe and therefore frictional losses are expected to be high as well.
As far as leaks, I would assume you would catch them before the tank drained too far. Just make sure you have a valve on the inlet (I think you do) so you can service your pump if necessary without draining your tank.