Thanks @Hal_Al ,
Yes, following form 8615 it is either $12550 OR $2200 deduction although I am not sure how anybody would choose the $2200 deduction since $12550 would always be higher.
The issue is that the IRS treats scholarship as "unearned income" although the kid has put a lot more effort into obtaining that scholarship than would be required for other general "unearned income" categories. Unfortunately, this is thus taxed at parent's tax bracket through no fault of their own. Oh Well !!
