@SriniVenkat said "I also have a 1099-Q from the 529 account showing Box 1 Gross Distribution as $17K - I received the check and deposited into my account after paying the $38K".
As long as the $38K payment and 529 distribution were in the same calendar year, you have a qualified distribution. If you had used TurboTax, I would tell you to look at the work sheets for details.
The apparent explanation is your tax peparer did it wrong. Unless your income is too high, you should also qualify for a tuition credit. Unlike tuition credits, there is no income limitation on a 529 plan distribution being tax free (qualified).
