Flipping within a OZ Fund and preserving the 10 year basis step up of proceeds

[Mark Simpson]

I have a couple of OZ funds (set up as partnerships - 1065) with multiple properties.  Some of these properties we plan to hold through a 10 year period to get any capital gain over that period tax free with a step up in basis at disposition.  However we have also turned over a couple of properties within the fund during this time, under the assumption that as long as any proceeds stay in the fund, are reinvested in qualified property within a 180 day period...and we meet the 90% asset test June and Dec, that cap gains from these 'flips' can also be parlayed with a basis step up at the end of 10 year.  aka, like repeating 1031's, but without having to do the 1031.

Recently I've started to think this might be misguided, and that the internal gains might come due Dec 31, 2026, along with the initial 85-90 deferred gain/investment because we didn't incorporate the 1031 aspect (and couldn't have because of installment sales, reinvest window etc).  Would love an Accountant experienced with OZ's to chime in.  Again, funds have never left the OZ Fund and always been reinvested in qualified property within the guidelines.

Thanks in advance,

Mark