The tax thing isn't that big of a deal, does he really need a business license? I'm sure this is state to state. Honestly, doing this 'under the table' is the best way to go if you can(if anyone hasn't then you probably worked for a large school, anyone at FBO Joe's has at one point or another). But if someone makes a stink then you might have to watch that.

I'd say the largest hurdle to get over is the use of the FBO's planes and taking away from their instructors(which takes away from them....and so on). If you actually get past that, get yourself insured since you'll be an outside source(AOPA has a policy for CFI's as well as rental pilots).

Good luck, hope it works out for you.