Reject Code F1120-260-01 occurs when Schedule K, Line 13 is marked "No", indicating that the corporation's total receipts and total assets are not less than $250,000, but Schedule M-2 has not been completed.
Understanding the Requirement:
If a corporation's total receipts and total assets at the end of the tax year are $250,000 or greater, it is required to complete Schedules L, M-1, and M-2 along with Form 1120.
This error happens when Schedule M-2, Line 8 is left blank, even though the corporation's receipts and assets meet the reporting threshold.
How to Fix This Rejection:
Option 1: If the corporation's receipts and assets are LESS than $250,000
Answer "Yes" to the question on Schedule K, Line 13 to confirm that reporting is not required.
In TaxSlayer, go to:
Schedule K - Other Information
Receipts and Assets at Year End Less Than $250,000? → Change "No" to "Yes".
Save and retransmit the return.
Option 2: If the corporation's receipts and assets are $250,000 or MORE
Complete Schedule M-2 as required.
In TaxSlayer, go to:
Schedule M-2 - Unappropriated Retained Earnings
Enter the appropriate values.
Save and retransmit the return.
Following these steps will ensure compliance with IRS filing requirements and prevent further rejections.