Typically this happens because TurboTax allocates some of the box 1 the expenses to the tuition credit, allowing you to claim the American Opportunity Credit (AOC) on your tax return. That means that the qualified expenses allocated to the scholarship are reduced, possibly making some of the scholarship taxable on the student's tax return.
That statement is not clearly wrong, until we know what the amounts are, even if the scholarship is 1/3 of his tuition expense. Example: box 1 is $4000, box 5 is $1333. Parent claims the whole $4000 for the AOC (and TT will do that), then the whole $1333 is taxable to the student.
What are the amounts in boxes 1 and 5? Does he have other qualifying expenses, fees, books, other course materials, including a required computer (do not include room & board)?
