All VA benefits should be tax free regardless how they were issued. I would exclude the amount paid from CSDDV as taxable income on he return. If this amount is a part of a larger amount that is reported as scholarship income, you need to find out what this amount is and exclude it from your taxable income. Here is how to exclude if you verified this amount is reported as a larger amount.
- Go to Wages & Income
- Scroll all the way down to Less Common Income
- Select Miscellaneous Income, 1099-A, 1099-C from the drop-down
- Select Other reportable income
- Any Other Taxable Income? = Yes
- Description = CSDDV VA benefit income reported as Scholarship money on a 1098T
- Now represent the CSDDV VA amount as a negative number by placing a minus sign in front of the total.
As far as asking if she receives other VA benefits, you may have her change the answer and say she didn't receive any VA benefits. Then you could see if this impacts her return. It shouldn't.
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