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Scholarship income seemed to have become an emphasis item with IRS while my kids were in college. In 1999 or 2000, in sophmore or junior year of my oldest, he began getting 1099's from the college showing scholarship income. Colleges are now required to report these to IRS. This is reportable income.

Not entirely true. Colleges now report scholarships on the 1098-T and it is required. The 1098-T shows what was billed to the student as well as scholarships used towards that amount. It covers the 529/Coverdell/Education credit/deduction usage issue. This is not the same as reporting it to the IRS as income. As far as I know, scholarships become reportable income with a 1099 when they cover more than the cost of education. This is what is true for me for 2006 with 2 institutions involved.

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