My daughter's university (Univ of Arizona) made an error in distributing her Fall 2023 scholarships which triggered reporting of $2500 in Box 4 and Box 6 of her 1098-T and artificially increased Box 5 by $2500. They incorrectly entered a $2500 scholarship as 2022 scholarship into my daughter's account, then immediately reversed that transaction. After that they correctly distributed her Fall 2023 scholarships. The university has claimed that everything is corrected by the Box 4 and Box 6 adjustments but Box 5 (2023 scholarships) is still $2500 higher than the actual scholarship that she received.
This has created a problem because we withdrew from our 529 exactly the amount of her expenses minus her (actual) scholarships. But, due to her scholarships being artificially high in Box 5, we show excess distributions from the 529.
(total qualified expenses) - (1098-T Box 5, scholarships and grants) = (allowable 529 withdrawal)
The university has washed their hands of the problem with the phrase "we can provide tax advice" and is clearly not going to correct the 1098-T because in their books balance. But I still have to deal with the problem. Is there a way in TurboTax to make an adjustment to the 1098-T numbers in some way that won't trigger an audit when my numbers don't match the 1098-T reported to the IRS?
In the Education Summary, after entering the 1098-T information, if I click "Edit" for "Scholarships/Grants", there is an interview question that states "Did <Student'sName> Aid Include Amounts Not Awarded for 2023 Expenses?" If I answer "Yes" to this and enter the $2500, then everything works out. Is this the correct way to handle this? And, where in the forms/worksheets is this being entered? I tried to verify how this is being applied in the forms but I'm not finding it.
Lastly, I need to understand if my 2022 taxes are impacted. I understand that a positive amount (decrease) in Box 6 can trigger the need to refile the prior year taxes, however, I think Box 4 offsets Box 6. I.e., Box 4 reduces our 2022 qualified expenses and Box 6 reduces 2022 scholarships so based on the above equation, my allowable 529 expenses in 2022 would be unaffected by these prior year adjustments. Is this correct? I shouldn't need to worry about refiling 2022 taxes.
Thank you for any help.
