"We don't want to claim him as we don't want the 'income' increase to our household."
Can you clarify what you mean by that? His income (including the taxable scholarship) would still go on HIS tax return, not yours.
If he has PERMANENTLY moved away (including he changed his mailing address for everything and his driver's license address), you can not claim him as a dependent, and he can claim his own exemption. If he has permanently moved away, support doesn't matter.
However, he would still be subject to the Kiddie Tax, and would not qualify for the refundable part of the American Opportunity Credit.
