Q. I would just like to ask, if my child did not work and no other income to declare except the scholarship where he has a refund of roughly 5k last year does he need to file a return?
A. No, because the amount is less than the $13,850 filing requirement (and maximum standard deduction).
Q. How about the 1098-T will this be reported to the IRS?
A. Yes. But, their computers are capable of discerning there's nothing taxable there and it's not area of high enforcement.
Unless your income is too high (>$180K married), you should be looking at claiming the tuition credit, on your tax return. See "loop hole" explanation above.
The IRS actually encourages use of this technique. From the form 1040 instructions: “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040 and IRS.gov/EdCredit". PUB 970 even has examples of how to do the “loop hole”.
