1099Q received by grandparents, student is not their dependent, how to remove taxability

Your point is well taken and should be highlighted.  There cannot be double reporting of the same item.  So if parents claim AOTC for tuition then the grandparents have taxable income on their 529 earnings if their 529 monies were used for the same tuition.  But obviously if used for something different (room and board, etc.) then there is no issue.  One of the four questions on Passover is: On all other nights, we don't dip even once. Why on this night do we dip twice?  The IRS is not a fan of double-dipping.

And if you want to know the answer to that question of Passover:

Slavery: The salt water into which we dip the karpas (potato, onion, or other vegetable) represents the tears we cried while in Egypt. Similarly, the charoset (fruit-nut paste) into which the bitter herbs are dipped reminds us of the cement we used to create the bricks in Egypt.

Freedom: Dipping food is considered a luxury; a sign of freedom — as opposed to the poor (and enslaved) who eat "dry" and un-dipped foods.

95% of all problems associated with the 1099Q can be avoided if the school gets the money directly and the student gets taxed.  In those instances, it is one less layer of bureaucracy to deal with, as it is then usually the parents and the students, instead of the parents who claim the credit, the student who has the 1098T and the grandparents who end up with the Q and may be in another state from the parents and the student.