You are correct, scholarship that exceeds qualified educational expenses (QEE) (tuition, fees, books and other course materials) is taxable income. However, you would have to have at lest $12,000 of income in order to pay any tax, as everyone gets a $12,000 standard deduction*. But, you do not have to "file the form 1098-T". The 1098-T is only any informational document. The numbers on it are not required to be entered onto your tax return. You only have to report your income. In TurboTax, entering the 1098-T is the easiest way to do that.
The IRS also gets a copy of that 1098-T, so those people not reporting it are at risk of getting caught. The IRS knows they got that income. In your sister's case, none of her scholarship is taxable ("it does not exceed tuition"), so her tax pro was correct in setting it aside (unless she was eligible for a tuition credit).
*Students who can be claimed as dependents don't automatically get a $12000 standard deduction. But taxable scholarship is treated as "earned income" for purposes of calculating the standard deduction. So, effectively, students don't pay tax on excess scholarship money under $12,000.
