I am stumped here...
Qualified Education Expense is 2,916.79
Pell Grant 1,650.00
Parents paid remaining 1,366.79
After all expenses were paid the state awarded the student an additional 1,500.00. Since all expenses were already paid, the college refunded the student the $1,500.00. The student then spent the $1,500.00 on non-education items (new stereo, video games, etc.) without the parents knowledge.
The $1,500.00 would now be taxable since it was not spent on Qualified Education Expenses, but, who has to claim it? The parents do not want to claim it, since they knew nothing of it. They want it reported on the sons return.
It would seem to me that since they are claiming the education credits, they would be the ones to claim it, however, they disagree and want me to show them something that says they have to claim it.
Any advice?