My kids' elementary school also caps their testing to one grade level above. I've pretty much given up trying to argue with them since my older child was in 3rd grade. He was marked as "reading at the end of 2nd grade level" at the beginning of 2nd grade, while reading history books written for high school students. In 3rd grade and later on, he would read every single book in the classroom collection, usually 200-300 of them, in the first week of school. So we always just let him pack books to school.
In middle school it was the real problem, because the spread of reading levels was huge at that point and the teachers weren't doing a good job differentiating.
In high school when the advanced kids read Shakespeare and Dante, it's not a problem anymore...
