It is OK to enter the 1098-T on her return. You are not really "reporting" it, you are just using it as an entry tool. Nothing about a 1098-T will go on her actual IRS forms.
Even though she has taxable scholarship income, you do not enter it in the income section of TurboTax (TT).
You enter it at "enter your higher education expenses" At the 1098-T screen, enter the taxable amount in box 5 and zero (0) in box 1. Do not enter the actual numbers on her actual 1098-T. Make no other entries in the education section.
TT puts the income on line 1 of form 1040, with the notation SCH. It is treated as earned income for purposes of calculating her standard deduction.
