What I meant by my statement in post #109 is this:
Scholarships over an above the cost of tuition and fees (plus books) are essentially “earned income” for purposes of the 1040 and must be reported on line 7. One must pay taxes on them. Okay. That really is fair enough. (But I wouldn’t say it “suits the taxpayer.” It seems to suit the IRS. But, it’s understandable that taxes should be paid on that amount. Why do you say it suits the taxpayer?)
For purposes of the Support Test, taxable scholarships essentially become non-existent. They disappear into thin air and cannot be counted as a means of one’s support, even though they’re being used for that person’s support. Odd. Not black-and-white-fair or reasonable, imo.
And then, to add insult to injury, taxable scholarships suddenly become “unearned income” for the purpose of the Form 8615, which is used to compute the kiddie tax! Pretty clearly not fair or reasonable, in my estimation.
The scholarship amount not used for QEE is all at once earned income, non-existent, and then unearned income. That’s why I say that taxable scholarships seem to be treated in a way that suits the IRS at every turn. It’s very weird. I know this is hyperbole – it’s an exaggeration to make my point – but it’s like they’re picking on really good, really smart kids who happened to earn top scholarships and taking a disproportionate amount of their funds! I find it very odd.