Thank you, Bob.

Your friend is concerned about gift tax when the money comes back to him, but not when the house is given to the child in the first place?

I have explained to him about the gift from giving the house to the son. In my understanding, there will be no tax due but the lifetime exemption will be reduced.  I am pretty confident about this part of it.

And if so, who gets the house in the divorce? 

This illustrates quite well the law of unintended consequences.  He could pay the tax now, own the home, then leave the house per his wishes in a trust.  He could avoid the tax and the let problem be someone else's to deal with after he passes.  Despite being a newly wed to a hot woman, he is prudent, and sensible and will make a thoughtful decision. 

He has a second son, more bright than the other. I might ask if he has considered letting the two sons own it.

Abusive tax schemes are an issue.  What are the audit rates?  What is abusive?  Is the penalty a huge consideration.  I don't have time to research these questions.