If Form 1120, Schedule K, Line 13, does not have a choice of "Yes" indicated, then Form 1120, Schedule M-2, Line 8 must have a value.
When a corporation's total receipts for the tax year and it's total assets at the end of the tax year are both $250,000 or greater, Schedules L, M-1, and M-2 are required to be completed along with Form 1120.
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.
To correct reject code, either change the answer to the line 13 question to Yes, or complete Schedule M-2.
If the corporation's total receipts and total assets are less than $250,000, answer Yes to the question on Schedule K line 13. From the main menu of the corporation tax return (Form 1120) select:
- Schedule K - Other Information
-
Receipts and Assets at Year End Less Than $250,000? - Select change NO to YES.
After making this change, exit the return and retransmit.
Otherwise, if the corporation's total receipts and total assets are $250,000 or more, Schedule M-2 must be completed. From the main menu of the corporation tax return (Form 1120) select Schedule M-2 - Unappropriated R/E.
Additional Information:
IRS Instructions for Form 1120