Taxable Scholarships for a dependent?

I had a similar situation although my dependent-filer did not have taxable schoolarship. I called the IRS and they told me that the expenses were to be placed in the parent's returned evernthough he paid his own education. I file a 1040x for the parents and included the expenses and hope credit which they qualify.

That is correct, students claimed by their parents can not claim the education expense.

But the student must still claim the taxable portion of the scholarship income on line 7. The program won't allow that to happen because the student is a dependent on the student's personal tax return. Is there a work around here?

I just ran into this problem and I agree that the taxable scholarship should be reported on the dependent's return and not the parents. Did you find out how to work around this other than overriding it?

I just called Pro Series today because I haven't seen a solution from anyone on the community boards. The woman I talked to reported the problem to development (it is a software problem) for correction. Don't know if it'll be corrected this season or not, but the hope it to get the error message changed to a diagnostic message so the t/p can still efile. In the meantime I was told I could TRY to efile from Homebase. Highlight return to efile from Homebase, click EF, Convert/Transmit Return and Extensions and remove the check on the box where it checks for errors. It might go through then. I haven't been able to test it yet, hope to this week with my client.

I just overrode the amount and was able to e-file the return. Is that going to cause a problem with the IRS?

Only if by override the amount you mean that you did not report the taxable schlorship income. That would mean you deliberately underreported your client's income.

I filed the tax payers return,uncheck the box, and filed as instructed with the error. IRS accepted the return today so I guess it's good to go. I knew the return was completed correctly and that it was merely a software error, so it really is just trying to find a way around the program.

most scholarships are not taxable for undergraduate students since they are not performing services as a condition for receiving the scholarship. It is better to avoid the 1098-T worksheet altogether and enter the proper amount of education expenses as calculated by you, (tuition paid less scholarships/grants) Tuition paid is usually the same as tuition billed. Schools seem to only want to use box 2 these days.

You are correct that most schlorships are not taxable; however, some are and this was. The taxpayer received schlorship income in excess of tuition to cover room and board. Room and board schlorships are taxable.