I honestly wish people that have no idea what Chapter 35 is would not answer these questions. Chapter 35 is NOT the GI Bill. There is no benefit within Chapter 35 that is "required to be used for educational expenses". Chapter 35 payments are the "equivalent" of BHA payments in the GI Bill program. Most "States" offer a Tuition "waiver" or "reimbursement" for people who are eligible for Chapter 35; but that money does not come to the person "through" Chapter 35 or the VA.
When discussing the Federal Education Benefits, you would absolutely file the 1098-T the school sends you. What it will show is all fees and tuition "required to be paid directly to the institution" (Box 1)in order to attend. It will also show all "grants" and/or "waived" Tuition paid by the State or any other benefit program. (Box 5)
Most of the time, a Chapter 35 recipient will have a higher number in Box 1 than Box 5 since typically (unless receiving another grant/scholarship) includes the "other than Tuition" fees the school charges (i.e. labs, equipment, insurance of some sort, meal plans, etc...)
In that section of your taxes, you would enter the amounts the school shows in those boxes. Then, you would enter any "additional eligible expenses" you incurred (i.e. books, etc..) required to attend but not required to be paid directly to the institution. In my son's case, that would be over $700 (note: parking/transportation is not an eligible expense).
Then, you will answer "Yes" to the question asking if you participated in a plan run by the VA. In that section you would enter $0 for the amount of the money you got from the VA that was "required to be used for educational expenses" because the Chapter 35 payments are NOT required to be used for anything in particular. They can be used for whatever the recipient deems necessary. The only time you'd enter anything in that box would be if you received a payment from the VA that was SPECIFICALLY REQUIRED TO BE USED FOR AN EDUCATION EXPENSE. This is usually something existing in GI BILL PAYMENTS FOR TUITION NOT CHAPTER 35 PAYMENTS.
