<< On his return, 4,000 entered in that same field reduced the amount being applied to his AOTC to 4k not the full 5K, and his tax adjusted slightly (due to the aforementioned 10% penalty difference on his own directed unrelated 529 non-QHEE withdrawal)>>
This seems to be introducing a new issue. I don't recall a separate 529 withdrawal being mentioned. I don't think you can't apply the penalty exception to both your 529 withdrawal and his wthdrawal for the same $4000.
