<p>scmom:</p>
<p>If $7k of scholarships/grants is ‘naturally’ taxable, i.e. exceeds QEE, a parent can choose to have the student make an additional $4k taxable by applying it to R&B and use that $4k as expenses for the AOC. The student would report $11k as income insted of $7k but generally pay less in taxes than the $2.5k credit is worth to the parents.</p>
<p>See example 2, page 13 of IRS pub 970:</p>
<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>Edit: change $4k credit to $2.5k credit</p>