The kid started to sell the pictures to parents, having confirmed with his teacher that he indeed held copyright to the pictures. Apparently the school did not take lightly to him earning money using school equipment and first incorrectly claimed that they owned the rights to the images. The kid knew more about copyright than they did, so they then changed their allegations to him invading peoples privacy by publishing photos where they could be identified on his Flickr page.
IANAL, but that might actually have some standing as opposed to the intial copyright claims. Funny how copyright has turned into a general-purpose, first-line-of-offense tool for media control these days. Anyway, the school itself actually did the same thing, by allegedly posting similar images on their social meda pages.
It should be possible to post images where the models can not be identified or where they have signed a model release form. Selling pictures to the parents should never be a problem.
I find it rather surprising that such an enterprising artist would not be supported. I can understand that the school might not want him to monopolize the equipment or similar but I doubt that was the case here.
The threats about being 'reported to the IRS' are also dubious; as long as he declares that income I doubt it would be any problems? In Sweden, where I live, you can earn quite a bit of income on the side, as a hobby, as long as you report it and pay taxes. Which you just do on a field in the income tax form.
Is there more to this story? We have no comment from the school (they have not responded). Maybe the school expected to be able to use these photos for free? Or maybe someones buddy sports photographer felt threatened by this kid's artistic merit and sent the principals after him?