Q. Am I supposed to be typing these into a message to you directly?
A. No. You are doing it correctly. Although you may want to strat a new thread, if you change the topic. A new thread will "get more eyes" on your question.
As to the "loop hole", this is my standard answer, which you may have already seen:
The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.
Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.
Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket, she would only need to report $5000 of taxable scholarship income, instead of $6000.
The AOC is up to 40% ($1000) refundable. Students under 24 are, generally, not eligible for the refundable portion, on their own returns. Parents are, if the student is their dependent.
You can file amended returns (up to 3 years) to claim the credit. The student would also have to file amended returns to report the additional scholarship income.
You can't claim the credit, on your return, if he files indendent. He can claim the credit if he files independent, but not the refundable portion (the under 24/earned income support rule).
