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Suppose John received 1099-Q distribution from 529, further suppose the distribution is fully used for qualified education expense (room and board for example) of someone who is not a dependent (divorced or grand child). Since there is no place on form 1040 to show the total distribution was used for qualified education expense, what should John do to avoid IRS audit letter?
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As of now, I don't think anything can be done. Tell the taxpayer that there likely will be an IRS notice, and you can even prepare a response to the IRS now, so the taxpayer can send that response to the IRS when they get that notice.
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I agree with Bill about warning the client of possible (future) IRS correspondence. I also document the expenditures in a statement that goes with the return (not that the IRS will read it....). Then I can just print, attach to the notice when it comes, and mail.
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Click this link to vote. Like many good things in life, we have to fight for them.