In 637, as part of Emperor Taizong's scheme to bestow prefectures on his relatives and great generals and officials as their permanent domains, Li Daozong's title was changed to Prince of Jiangxia, and he was given the post of prefect of E Prefecture (roughly modern Ezhou, Hubei), to be inherited by his heirs. Soon, however, with many objections to the system, the strongest of which came from Zhangsun Wuji, Emperor Taizong cancelled the scheme, although Li Daozong's title remained Prince of Jiangxia and he remained the Prefect of E Prefecture. At one point, he was accused of corruption, and Emperor Taizong, in anger, removed him from the post and reduced his fief, but permitted him to return to his mansion as a prince. Eventually, he was made the minister of ceremonies. After Hou Junji destroyed Gaochang in 640, allowing Tang to annex Gaochang, Hou was unhappy that Emperor Taizong did not reward him as much as he expected and had further investigated him for stealing from the Gaochang treasury. Li Daozong, knowing that Hou was unhappy, warned Emperor Taizong that Hou may commit treason—a warning that Emperor Taizong did not believe, but later, in 643, after Hou was implicated in a plot with the crown prince Li Chengqian and executed, reminded Li Daozong about and thanked him for.