IRS should definitely develop a form for the Q distributions. Just from reading the questions and sometimes the answers posted here on this subject, it is pretty clear IRS is losing a good chunk of money with same expenses being used to claim the AOTC and to offset 529 distributions.
ProSeries does an EXCELLENT job (oh my, I can't believe I just said that) with the AOTC worksheets and the Q worksheets and how they cross-reference and compute the taxable income on each Q form. The problem is I believe some don't understand the interplay between the Q and the T, and that certain expenses for the Q don't qualify for the T, and as a result the input of either/both may be incorrect.
When there is a Q involved, you need to make sure you do not enter more than $4000 of qualifying expenses for AOTC purposes on line 17 of the Student Information Worksheet.
Once all of this is done and the input is correct, a good way to double check all this is to enter the data for both these forms on the taxpayer doing the claiming (usually the parents) as well as on the student, making sure the student is marked as a dependent. The computations on both returns must be exact.
It gets much more complicated when the grandparents are involved when we as preparers may not know about the Q they received, especially if we are not provided the detailed tuition bills and payments received by the schools (I could post at length why Box 1 of the T is wrong as often as it is right). Which may be exactly why there isn't a form for a Q. Would there be privacy issues if the parents had to include the personal information for a non-dependent taxpayer, like the grandparents, on their return? Could that be why IRS hasn't developed a form for the Q?
Sorry for the mini novel.
