The numbers tell me the student would need to claim 3,869 for you to have 4,000 for the American Opportunity Tax Credit.
Remember the credit can only be claimed 4 times in regard to this student.
17,370 expenses - 4,000 needed for credit = 13,370 expenses left over
Scholarship 12,695 + Distribution 4544 = 17,239 aid
aid 17,239 - left over expenses 13,370 = 3,869 the student claims as income.
Whether Scholarship or distribution depends.
Scholarships are reported as Earned Income whereas distributions are not,
ADDITIONALLY, distributions are only taxed on the portion attributed to "EARNINGS".
If the student only earned 7,500 that year, chances are there will be no additional tax either way.
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