What makes you believe that this reduces the books portion on the AOTC? The Ch 33 books stipend is paid directly to the individual, it is not required to be used for books. They give the amount regardless if you have any book expenses or not. (Sort of like the BAH). The one difference is that it is "earmarked" for books, supplies, etc but if you have no book fees, you don't have to pay it back, you can use it to buy a dog if you wanted. I can't seem to find any strong evidence that this isn't treated like the BAH. Also, it should be noted I searched Tax Court. Only thing I could find was Lara v Commissioner IRS.
