@Hal_Al
A huge thanks for your help and expertise. I finally get it. Paying tax on scholarships not used for QTRE does not automatically convert 529 NQEE to QEE or offset NQEE necessarily, unless those taxable scholarships have actual expenses (R&B under COA in our case) they can be allocated to. (Which makes them 529 QEE). I've read so many things about tax-free scholarships taking away the 10% tax penalty on NQ distributions, but that only happens if they are partial QTRE scholarships and there is still remaining tuition or fees to which taxable scholarships can be allocated. (This explains the "paying tax" to qualify a full $4K in AOTC expenses.) Again, thanks.
