1098-T Reporting of Repayment of Scholarships and Grants

[Wolverine Man]

My daughter received a 1098-T for calendar year 2020 from her college, showing that she received $4,279 in Scholarships and Grants (Box 5 of the 1098-T).  She elected not to attend college during 2020 due to the Covid-19 Crisis.  The college shows that the payments received for qualified tuition and related expenses in 2020 as $0.00 (Box 1 of the 1098-T).  The Scholarships and Grants that she received were all repaid to their respective sources in 2020.  Presently, she is looking at taxes that she needs to pay on the $4,279, based upon what the college reported, even though she did not ever benefit from nor does she have in her possession any of those funds.  How does she report this to the IRS using TurboTax?  Many thanks!            

[MinhT1]

If you have proof that the scholarships were never received by your daughter, the best solution is to not report this form 1098-T.

You just keep this form 1098-T in your tax records along with any proof that the scholarships were returned to the grantors.

[Wolverine Man]

Hi MinhT1, 

Thank you for your quick reply.     

The scholarships and grants were received by the college, for the benefit of my daughter.  At the direction of my daughter, she asked that they be repaid to their respective sources, which they were.   Why the college is not acknowledging that fact, I have no idea.  The college was contacted about this issue, and they said they reported the 1098-T as they were required to do.       

I understand your suggestion, leave the sleeping dog lie until she gets an IRS inquiry letter or she gets audited.  Or would it be best to file her return (mail-in) with an attached explanation of the what transpired, with the repayment receipts? 

Again, many thanks!

[Hal_Al]

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or deduction or possibly your student has taxable scholarship income. 

You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. 

No, do not file and attach a statement.  Those go nowhere at the IRS. Save your proof if you ever are contacted by the IRS (unlikely).