My company is selling a house where the proceeds were to be 1031 echanged into the purchase of another house.  The purchase contract states under 'closing date' section as follows:

"On or about DATE, but in no event prior to the sale of the purchaser's investment premises located in CITY for which Purchaser is doing a 1031 exchange with this premises and from which Purchaser will obtain the closing for this purchase."

The company was denied doing a 1031 exchange because the IRS felt that it did not meet (1) of the requirements.  With this denial, the numbers do not make sense.  With this denial, we are not sure if this is enough of a reason to cancel the contract and get our down payment back.  Any thoughts or experiences, BP world?