If the 90% test fails there is penalty under IRC section 6621(a) (2) 3 percent, plus fed short term rate. Currently the rate is 5 percent a year. 90 percent of assets less qualified assets times the 6621 rate. Here is an example: Total assets $50 million. 90% of assets are $45 million. Total qualified assets $40 million. There is a $5 million shortfall. The monthly penalty is $20,833.33, $5,000,000 X (5 percent/12). If there is a penalty, the shortfall will be recalculated each month. In the above example the qualified assets are $40 million, which created a $5 million shortfall. When there is a shortfall, consider getting an appraisal on the qualified assets. Hopefully the appraisal will show the fair market value is more than $45 million and remove the penalty, or merely just reduce the penalty if an amount between $40 million and $45 million is appraised.
