Co-Located Tests, Better AI Code: How Test Syntax Structure Affects Foundation Model Code Generation

AI coding assistants increasingly generate code alongside tests. How developers structure test code, whether inline with the implementation or in separate blocks, has traditionally been a matter of testing philosophy. We investigate whether this choice affects AI code generation quality. We conduct a large-scale empirical study (830+ generated files, 12 models, 3 providers) using SEGA, a three-dimensional evaluation framework measuring Determinism, Preservation, and Correctness. Comparing inline test syntax (Python doctests) against separated test syntax (Rust #[test] blocks) on a d-ary heap implementation, we find that: (1) inline tests yield near-perfect preservation (100%) and correctness (92-100%) across all models; (2) separated tests expose stark model-tier gaps (0-100% correctness) and independence between preservation and correctness; (3) model behavior evolves across generations, and notably one model breaks the test suppression pattern of its three predecessors; (4) mechanistic analysis on 7 open-source architectures (6 transformers and a gated-linear Recurrent Neural Network (RNN)) reveals inline test markers receive 2.8-4.4$\times$ stronger attention in 5/7 models, with causal validation via knockout and steering experiments on the 4 code-specialized transformers and RWKV-6; the co-location mechanism extends to a non-transformer architecture, suggesting the design recommendation is robust to future architectural shifts. In the Foundation Model era, test syntax structure is a software design concern: co-locating tests with implementation code produces measurably better AI-generated code. This arxiv long version includes appendices that further qualify the effect as bounded by both model capability and programming language.