Ok thank you, that makes sense. Can I actually expand this a little more to the full situation, since I was just using even numbers in my example?
The amount the VA requested to be paid back was actually slightly lower than what the college refunded to the student. The college refunded $3,166 but only $2,252 was actually requested to be paid back by the VA. The $913 difference was to be used for books/course materials. I would think that $913 would still be needed to be shown as income since that was not paid back (Perhaps taxpayer would then be entitled to claim a portion of the Lifetime Learning Credit based off $913 of expenses).
Should I just subtract the $3,166 refund from the scholarship amount shown in Box 5, leaving the $913 excess to be treated as income, and I would just file a paper return with copy of the 1098-T and a note explaining the adjustment?
