1098-T Calculating Taxable Scholarship

[GraceNY]

I know the 1098-T's are a useless information document and that it is best to consult the student's account transcript, Having said that, however, I am curious how others would handle the following when you have both:

2011 1098-T: [school Year Fall 2011 to Spring 2012]

Box 2 (Amounts Billed): $ 40,000

Box 6 (Scholarships or Grants): $ 46,000

Box 8 (X)

Account Transcript: [Calendar Year January 2011 - December 2011]

Freshman Spring Semester January 2011:

Qualified Tuition and Expenses: $ 0.00 [NOTE: The Spring Semester was billed in 12/2010]

Scholarships and Grants: [NOTE: Applied after 1st of year]

Pell Grant: $ 2500.00

XYZ Award: $ 500.00

-------------

$ 3000.00

Sophomore Fall Semester September 2011:

Qualified Tuition and Expenses: $ 20,000.00

Scholarships and Grants:

College's Scholarship: $ 19,800.00

Pell Grant: $ 2,500.00

XYZ Award: $ 500.00

ABC Award $ 300.00

---------------

$ 23,100.00

Sophomore Spring Semester January 2012:

Qualified Tuition and Expenses: $ 20,000.00

Scholarships and Grants:

College's Scholarship: $ 19,900.00

As you can see, everything neatly matches up with the amounts reported in the boxes on the 1098-T, but the amounts billed for tuition and expenses are done on a "school year" basis, but the scholarships and grants are applied on a "calendar year" basis which causes a mis-match.

Do you go with the amounts reported on the 1098-T? And that means that the student has a potentially taxable scholarship income of $ 6,000 ($40,000 qualified expenses - $46,000 scholarships and grants). If it's done this way then the Spring Semester of their Senior year 1098-T document would show no qualified expenses, but yet scholarships that would produce taxable income. OR

Do you match up the qualified expenses and the scholarships with their corresponding semester? That means I would have to review their 2010 tax return and account transcript as well as the Janaury 2012 account transcript to properly match it up.

For puposes of simplicity, this whole post ignores the cost of books and required qualified expenses that appear outside the account transcript which I know can reduce the scholarship income.