In a nutshell:
is a QTP distribution considered a nontaxable educational benefit?
Yes and no. (yeah, "in a nutshell" right?)
While scholarships can only be used for the qualified education expenses of tuition, lab fees and books, a QTP distribution can be used for those three things "AND" for the allowed by unqualified expense of room and board *provided* that room and board is "in direct support" of the education.
So any monies left over from a QTP distribution after paying the qualified expenses and "allowed" expenses is taxable income to the recipient named on the 1099-Q.
