This is great - collaborative discussion and suggestions. narrowing down to a solution that I (we) hope will work.
Gil, sorry you may be dealing with a return problem but it's likely the best outcome. If you want to reset the whole issue I'd suggest getting an AXA quick-change holder that will accept a narrower inset and consequently a lesser blade height. I don't know what your nominal tool height over the compound is but - I hate to say it - measure first. Even though the lathe apparently handles an AXA size toolpost there are other dimensions that clearly got in your way. I wish I knew more about your particular lathe; thus better advice at the outset. I have two lathes that employ AXA posts and tool height is certainly different. I think all the toolholder dimensions published for the #71 would have probably predicted this problem ; 15/16 tool height in the holder.
I've been in your boat. I have made this same mistake more than once!
Mike's (Bluwolf) idea is great especially if your quick-change toolpost does not index around. You just slap in the holder he mentioned and you're already lined up. If you have an indexing one (like the Dorian Quadra) then I'd suggest you get an independent holder for the narrower blades. My Dorian cross reference part number is QITP25N. Tool height may still be too much.
There are also indexable cutoff holders with a square shank that will give you around 1.250 cutoff capability and you wouldn't need another holder but I don't know if the shank size gets less than .500 inch. (e.g. Iscar 2300835) If you have trouble with tool height with this option, then, well, maybe I shouldn't say ...
Cheers,
Rich