The bottom line is that your son must indicate that he paid a portion of the money to his friend. He'll need to issue a 1099-MISC to his friend (should have been done in January) for the amount he actually paid his friend.
Your son, when he files his tax return, will need to indicate that a portion of the 1099-MISC income he has received was paid to someone else. Your son may wish to mail his return and include a statement to support why he's not paying taxes on the full amount. You "may" get by without a 1099-MISC if the payment to his friend was less than $600, and your son includes in his statement the name and SSN of his friend, and the amount that was passed on to his friend.
If you're unfamiliar with preparing and filing a 1099, you can use TurboTax Quick Employer Forms. However, using QEF does mandate that you're using TurboTax Self Employed Online or TurboTax Home & Business Desktop edition (CD/Download).
Please post back if you have further questions.
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*** I am NOT a tax expert. I am a seasoned TurboTax user, and volunteer to provide assistance to TT users. Nothing I post is to be considered TAX ADVICE; I bear no legal liability for responses.***
