Thanks Joe, for adding your recent experience and thoughts. My daughter's 1098-T also reports the amount billed, and not the amount received.
I was at an IRS Taxpayer Assistance Center this morning with two questions:
-Why did this happen?
-What can we do when filing in the future to prevent it from happening again? (Tax year 2016 is water over the bridge, so I'm prepared to do this dance again next year.)
The answers I received were:
-The notices are triggered by a computer, and the IRS guy I was talking to couldn't be any more specific than that.
-I can attach a statement to future returns with an explanation of QEE that has been paid; hopefully a real live human will see this and tell the IRS system not to send my daughter a notice again. The problem for me here is that I file online using the IRS Free File program, and as far as I know there is no way to attach a statement when filing this way, as has been suggested.
I'm too stubborn to just give up and pay the amount demanded (especially since we're talking thousand of dollars), but I certainly agree with you that others may decide to go this route and pay what they don't really owe, which in the end will result in fewer people using 529 plans as a preferred college savings vehicle.