If it's not taxable it doesn't go anywhere.  I wish the IRS would come up with a "traveling" student form whereby a copy could be filed with everyone who needs it showing qualified expenses, etc.

You can try to disclose with a statement but I doubt that would help (wouldn't hurt).  The best approach IMO would be to have the grandparent direct the 529 plan to send the payment directly to the school.  Then the 1099-Q would come in the beneficiary's name where it can be docu-matched with the 1098-T.

Rick