Real estate agents can't pay a commission to an unlicensed person. But they can rebate part of their own commission to a buyer. Taxation in this situation is exactly as described by @Hal_Al . A rebate can be paid outside closing. What's important is that the agent's 1099-MISC reflects the full amount of his or her commission.
A rebate in this situation is not taxable income to the buyer. Instead, it is treated as a reduction in the buyer's cost basis in the property.
Commission rebates are condoned by the IRS, and are legal in most, but not all, states. An agent should consult with their local realty board as to their own state's rules.
On the Schedule C memo line, one would put "Rebate of Commission" or something similar.
**Answers are correct to the best of my ability but do not constitute tax or legal advice.
