You are correct that of the grant was received in exchange for services, she should include it on her return as Wages. You may have to adjust the entry in TurboTax so that it is not included as unearned income on your tax return. She could do the entry in TurboTax as if she did not get a W2- look for Other Reportable Income and you would exclude it on your return (just be sure to keep a copy with your tax records).
@oaklander
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