That technique is usually used when the student is a dependent on the parent's tax return. The student dependent claims the income and the parent claims the tax credit. See write up below.
For a student to do that, he would have to already have sufficient income to have a tax liability or be over age 23 to claim the refundable credit.
It takes a wok around in TurboTax (TT). There are several ways to do it. Lying to TurboTax to get it to do what you want does not constitute lying to the IRS. Using the example below and assuming you need $4000 of qualified expenses to clam the maximum credit: At the 1098-T screen, enter $8000 in box 1 and $10,000 in box 5. Later, in the interview you will be asked if any of the scholar ships were used for non qualified expenses. Answer yes and enter $6000. Also indicate that the scholarship was used for room and board.
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There is a tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.
Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 2. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.
