I'm no engine guru but I do not think tank height is the problem.

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I know this is not specific to K&B, but here is a direct copy/paste from the OS 61FX manual:
FUEL TANK LOCATION
Locate the fuel tank so that the top of the tank is 5 - 10mm (1/4-3/8") above the level of the needle-valve.
Be sure to use a pressurized fuel system by connecting the muffler pressure nipple to the ventpipe of the fuel tank.
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Unfortunately I have no idea what the real problem is. It wouldn't cost anything other than time and a little fuel to try the non-pressurized system. Both needles will probably need adjustment to run without muffler pressure.