A legal / tax issue

[broiler]

Income is supposed to be reported by the person who earned the money. The problem here is that the trail leads to an outside observer (IRS & State) seeing income to A, B & C.

I would assume that each person eventually transfers the money to you. Documentation is the key here. You need to have something in writing to prove what arrangement exists. All transactions between you and your friends should be clearly documented and recorded by all parties involved.

The biggest problem in the future is that an audit of one of your friends will likely get everybody audited. I say this because they will undoubtedly tell the auditor that it is your income and possibly tell the auditor that other people are involved in similar transactions. People under audit are notorious for throwing others under the bus.

Summary: There is nothing that appears illegal from the tax side of this, but documentation is your friend here.

And because I must: Pursuant to Circular 230, any tax advice contained in this response has not been prepared to be used, and cannot be used, by any person for the purpose of avoiding the appropriate payment of tax, interest, and/or penalties imposed by the Internal Revenue Code.