When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax (TT) will enter nothing about the 1099-Q on the actual IRS tax forms. So, the IRS will not know that you entered it in TT.
I've seen it suggested that you manipulate the numbers so that you make a small amount of the distribution taxable, so that something about the 1099-Q appears on your forms. I actually did that. I still got a notice from the IRS. A simple letter of explanation and copies of the schools billing statements took care of it.
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" Box 1 on my daughter's 1098T is larger than box 5. Box 1 on her 1098T is also larger than box 1 on the 1099Q reported for her".
Q, "This should indicate the withdrawals did not exceed what was paid out in education expenses", correct?
A. Not exactly. It would be more correct to say that if box 1 of the 1098-T exceeds the total of box 5 of the 1098-T PLUS box 1 of the 1099-Q; then none of the withdrawal and none of the scholarship is taxable. But if box 1 of the 1098-T is less than bx 5 + box 1 of the 1099-Q; then something is taxable. It's either part of the scholarship or part of the 529 plan earnings (box 2 of the 1099-Q); or a little of each. You get to decide, based on which works best for you
