My client has 3 children in college, all who have received distributions from a Sec 529, as reported on the 1099-Q. 

We have input the tuition expenses from all 3 1098-Ts, as well as books and room/board expenses. 

The client is not receiving any educational tax credits due to income phaseout. One student received a scholarship amount. 

Schedule 1 LIne 8 of Pro-Series is showing $22K in taxable income. In addition, Form 5329 is showing $13K in non-qualified expenses subject to the 10% penalty. 

I don't buy this. This is not consistent with the Tax Code.  Total earnings (not distr's) from all 3 1099-Qs = $36K. Total education expenses net of scholarships for all 3 kids = $26K. 

To me it seems as if only $10K should be taxable, with NONE subject to the 10% penalty. 

This can't be right! Am I entering something wrong? Is the software not calculating correctly? I'm not sending out this return with these numbers!