I understand your thinking but the big picture is how the IRS views this. They will look at each return on its own. It does not matter which credit is on her return.
- The money you withdrew is not being included in either tax return as income.
- The parents return is safe with nothing education related on the return. f the IRS were to ask you about the 1099-Q, you would provide the expenses covered. The IRS is not cross referencing the returns for these calculations. It only matters that the money went to room and board, books, tuition, etc.
- The child's tax return can claim either credit without it affecting the parents return. When the Q is entered before the tuition is entered, it will automatically pull out the money for the LLC. If you remove it, there should not be a problem.
My concern is that she is not eligible for either credit if someone CAN claim her. See Compare Education Credits.
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