This topic has been covered from a number of different angles. See the below reference:
http://benefitslink.com/boards/index.php?showtopic=9429Just a presumption on my part, but I doubt that the IRS will be paying much attention to a child's IRA. If the work is real rather than contrived, go ahead and do all the paperwork for employment. Keep records, pay taxes, file returns, etc. You may want to consider the educational IRA as an alternative at $500/year.