The 90 percent asset test is the rule that says a qualified opportunity fund, which is the pooled investment vehicle (usually a partnership or corporation) that holds the zone assets, must keep at least 90 percent of its assets in qualifying opportunity zone property. The IRS checks this twice a year, on the last day of the first six-month period and on the last day of the tax year. It averages those two dates to get the fund's score for the year.
If the fund falls short on one testing date, a penalty applies. The penalty is calculated on the shortfall amount, multiplied by the applicable federal rate (a benchmark interest rate the IRS publishes monthly). So if the fund is $200,000 short of the 90 percent threshold, the penalty is that $200,000 times the federal rate, for that period. It is not a one-time disqualification. The fund stays a qualified opportunity fund, and investors keep their deferral, but the sponsor owes the penalty for every month the shortfall persists.
The path back is real, but it depends on how quickly the fund deploys into qualifying assets. If the property was the holdup and it gets onto the books before the second testing date, the averaged score for the year might still clear 90 percent even if month one looked shaky. Whether that actually happened in the Mesa situation, I genuinely cannot say from the outside, and I would not want to guess at what their numbers were.
What I would confirm, and specifically with a tax attorney who works with opportunity zone funds, is whether a single bad testing date averaged with a clean second date produces a passing score under the fund's actual facts. The math matters a lot here and the answer changes based on the timing and asset values.
Everything here is a starting point for your own research, not a substitute for that conversation.
What was the approximate timeline between the fund's formation date and when the Mesa property was expected to close?
