If you're dealing with cash, do it in one deposit. Yes, your bank will generate some paperwork to let the government know about the transaction and that will potentially make the IRS more interested in auditing you down the road. But breaking up a large transaction into smaller transactions in order to avoid the bank generating that paperwork is a felony called structuring that could lead the government to confiscate all the money in the account. If you're making an electronic transfer, this is much less of an issue (though banks always have the option of making a suspicious activity report to the government if they see abnormal activity on an account).
To protect both of you, I'd put together a simple contract outlining what you're doing. State that Friend is giving you $11,000 today to be applied to the monthly rent from Time A to Time B in the amount of X/ month. That gives you documentation should the IRS or someone else inquire about where that money came from so that it's clear that you're not evading taxes.
If you're going to hold the money in an interest bearing account, do you intend to keep the interest or do you intend to pass that along to your friend? Either way, you'd want to specify that in the contract you put together in the previous paragraph. If you intend to keep the interest and pay the taxes, that's easy enough. If you want the interest to go to your friend, that's going to complicate things since the bank is going to generate paperwork for the IRS saying that the interest went to you. Assuming that you're getting something like 1% interest on the money so maybe $50 for the year (since you're spending down the balance every month), it's probably not worth the time and effort to fix the IRS paperwork. You could simply agree to write your friend a check for the interest minus the taxes you paid on that interest at your marginal tax rate. That would be income to your friend that he should technically declare and pay taxes on again (though it's incredibly unlikely that anyone in that situation would actually do so).
Separate from the financial arrangements, though, think carefully about whether this is really a wise thing for you to do. Mixing money and friendships in general is fraught with peril. What happens if 6 months in your friend says he wants some of his money to pay for something like car repairs? Are you going to give it to him, potentially leaving him short of rent at the end of the lease? Are you going to give him a loan from his own money that he has to pay back? Are you going to be responsible for figuring out whether he has relapsed and is really using the money to buy alcohol? Separately from that, if your friend is concerned enough about relapse that he doesn't trust himself to manage his money, do you really want to risk being stuck living with a roommate that has relapsed six months into your lease? If he's at a point where he's worried that he'd blow all his savings, he's probably at a point where he would be a really, really terrible roommate. Are you sure that you want to sign up to deal with that should it happen?
