OK, I'm back on track. Our mission is to get the 10% penalty waived and document it on form 5329. The simple thing to do, is enter $12,000 in box 1 and $12,000 in box 5 at the 1098-T screen. In fact, enter 12,500 (500 for the fees) in box 1 and reduce the tax on the 1099-Q a little. If you have any other expenses (books), add them to box 1 too.
Lying to TurboTax to get it to do what you want does not constitute lying to the IRS. The 1098-T you enter is not sent to the IRS.
