Yes, if you are liable for the distribution, and you agree with the student that you claim the expenses to allow the distribution to be non-taxable, the student must also not claim the same expenses towards a credit.
Tuition and fees on the 1098-T count towards an education credit, as well as books and supplies not paid through the school and therefore not listed on Form 1098-T.
Those expenses can count against the 1099-Q reporting a distribution, but Room and Board also counts for the distribution.
If you need Tuition and Fees, have the student lower the amount reported in Box 1 by the amount you need.
As stated above, there are other options to how you report the 1099-Q and how the student reports Form 1098-T
Going forward, make the distribution directly to the school or student so the student gets the 1099-Q.
Remember that the American Opportunity Tax Credit can only be claimed 4 times PER STUDENT, including any times you may have claimed it for this student.
Pub 970
@Jameshh
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