You say "My non-dependent son paid tuition to the community college which we reimbursed later from our 529 Plan through Fidelity."
I assume two things: he is the beneficiary of the 529 plan and the 529 distribution was in the same calendar year that the tuition was paid.
You've done nothing wrong (nor has TurboTax [TT]). We're seeing this frequently (it happened to me, personally). Apparently, the IRS has created a problem by not having a form to report the situation where the taxpayer uses all the 529 plan distribution for qualified expenses. Even if you had entered the 1099-Q in TT, nothing about the 1099-Q would have gone anywhere on the actual IRS forms.
You should reply to the IRS that it was all used for qualified education expenses. I attached a copy of my billing statement from the school and that took care of the problem (2-1/2 months later).
But be aware, you cannot double dip. Your son cannot count the same tuition money, for the tuition credit, that gets you the exclusion from the taxability of the earnings (interest) on the distribution. Since the credit is more generous; use as much of the tuition as is needed for the credit and the rest for the interest exclusion. Room & board are also qualified expenses for a 529 distribution (if the student is half time or more).
At least two other users have reported receiving a CP2000 letter, from the IRS, on 529 distributions. They replied that their child was in college and the distributions were for qualified expenses, which they listed, but they did not provide receipts.. They later received a notices saying they were in the clear.
