When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax (TT) will enter nothing about the 1099-Q on the actual tax forms. That is, no information about the 529 distribution being used for qualified expenses, is sent to the IRS by TT. But, TT will prepare a 1099-Q worksheet for your records. That work sheet is also not sent to the IRS. This is not a failure by TT, it's an IRS failure to provide a form for reporting that the distribution was "qualified".
You should only need to write back to the IRS explaining that you used the money for education.
At least two users have reported receiving a CP2000 letter, from the IRS, on 529 distributions. They replied that their child was in college and the distributions were for qualified expenses, which they listed, but they did not provide receipts.. They later received a notices saying they were in the clear.
I personally received a CP2000 on this same issue. In my case, I replied and included copies of the school's billing statements, as well as a copy of the TT worksheet. I, too, got an "all clear' from the IRS. It took em 2 months, back then.
If you purchased Audit Defense, Tax Resources, Inc. (the TT audit defense provider) should handle this for you. Contact them at 877-829-9695, or report your notice on their web site at http://intuit.taxaudit.com/.
