$5298 is the correct amount for him to pay tax on, if you allocate all the expenses to his 1099-Q. That would leave no expenses for the 1099-Q in your name (that goes on your 1040). So, your taxable amount will be $5408.
You do not enter the student's 1099-Q on the parent return. It goes only on the student's return. Your 1099-Q goes only on your return.
Q. What am I doing wrong and how to I get it to allocate the expenses between the two forms?
A. You have to allocate the expenses manually. TurboTax (TT) cannot do that for you (your situation is too unique and complicated). On each return, enter only the expenses you want to use. Be sure you don't duplicate the $4000 AOTC offset
First you need to definitively answer the question about the conditions of the scholarship. With $3858 of other earned income, $7992 (11850-3858) is the amount of scholarship you want him to pay tax on. After you made that determination, reply back and I'll try to give you detailed instructions.
