Q. Does the IRS also get the additional information provided by the school or just the actual 1099-T form?
A. No.
Q. How should we proceed?
A. Since YOU know the grant covered more than what the 1098-T says, that's what you use.
The school erred in putting room & board in box 1 of the 1098-T. But, the 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income.
You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid.
Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS.
If you claim the tuition credit, you do need to report that you got a 1098-T. The TurboTax interview will handle that. See "loop hole" above
