I had a heck of a time doing this myself. I had to scour the internet and finally found an answer from one of the tax experts on the Turbotax Q&A site. I can't for the life of me figure out why there is any difference between Box 1 and Box 5. I received full tuition through my state scholarship program TN Reconnect. I never saw the money. It directly goes to the school. It makes it look like there was leftover money after tuition was paid (box 1). Which there was not. The answer they gave was to take Box 5 (whatever the amount) and put it in as income (side job,cash). Yes, it says I now owe taxes, BUT then take whatever is in Box 1 and enter it in as what you paid for tuition. ( In the deductions and credits) Essentially, you did pay for it. It just never went through your hands. The end result is you now get to claim the Lifetime Learning Credit and the American Opportunity Credit. Instead of owing money to IRS I am getting a refund. I would just play with those numbers and see how it works claiming that as income. The Tax Expert said it was completely legal and IRS says to do what works best with the 1098-T.
