I don;t think so, I just tested it. If I enter a 1099-MISC for $5000, a 1098-T for $14,000, and put the scholarship after the 1098, it does NOT back out the 1099-MISC from line 21. The problem is that a 1099-MISC can be for anything and turbotax does not have a way to link up the 1099-MISC in the income section to the scholarship in the education section. The 1099-MISC could be for a line dancing contest. Plus the fact that the IRS instructions say that a 1099-MISC should NOT be used for scholarships, so why should the program expect to link them?
And actually, I don't like the idea of reporting it at all as income. The 1099-MISC instructions specifically say that the form is not to be used for scholarships. I would advise the taxpayer to go back to the payer and point this out to them in the instructions, and ask them to cancel the 1099-MISC with the IRS. If that doesn't happen, I would almost rather leave it off the tax form entirely, rather than create an income entry with a phantom offset. The IRS will send a CP2000, but the taxpayer can explain with the appropriate documents (tuition bills, letter of scholarship award from the payer, etc.) I'm not sure why the majority of superusers think that reporting the 1099-MISC and then reporting a phantom negative offset won't look questionable to the IRS.
