I couldn't quite grasp all of that either, but here are some relationships that might help you along your way.

The velocity of water leaving either hole is;

v = √2gh, where h is Δh from the top of the tank to the center of the hole.

So the volume leaving either hole would be;

dV = -√(2gΔhA²)dt, where A is the area of the hole.

Perhaps someone here is that is very good with integration and related rates can get a hold of this one. I would start with the assumption that one hole is indeed centered one inch above the base and then try to solve for the location of the second one.