@SallyRandall
Enter the 1099-Q on her return. Indicate that she is the recipient and the student. Then enter the 1098-T, at the education section. Enter $28,500 in both boxes 1 & 5. Enter no other numbers. That should do it (but frequently doesn't).
Review the Student information worksheet, (abbreviated Student Info Wk on the forms list), and the 1099-Q worksheet for the calculations. In particular look at Section VI, line 17 of the student worksheet, It should be blank or 0 (but frequently isn't)
One new wrinkle: The $9996 is unearned income, so the "kiddie tax" will kick in. Most of that will be taxed at the parent's marginal tax rate.
