The Internal Revenue Service has not issued any guidance on the tax treatment of winnings from World Cup prediction markets, leaving traders and platforms without clear rules as an estimated $25 billion in bets are placed. The lack of direction creates uncertainty for participants who may face penalties if they report incorrectly.
A $25 billion question
Prediction markets for the World Cup have grown rapidly, with $25 billion in wagers reported. These markets allow users to bet on outcomes like match winners or top scorers. But the IRS has not said whether these contracts are gambling wagers, which are taxed differently from capital gains, or something else entirely. Without a ruling, traders must guess how to report their profits.
No guidance from the IRS
The agency has not released any formal notices, proposed rules, or other documents addressing prediction markets. This silence contrasts with other areas where the IRS has provided clarity, such as for sports betting in states where it is legal. The lack of action leaves a gap for a market involving billions of dollars.
Potential consequences for traders
If the IRS later determines that these bets are subject to specific rules, traders could face back taxes, interest, and penalties. Without clear instructions, some may underreport or overreport their income. The uncertainty also affects platforms that may need to issue tax forms but don't know which ones. No timeline has been set for any potential IRS guidance.
The World Cup prediction market operates in a regulatory gray area. Unlike traditional sportsbooks, which are licensed and taxed at the state level, prediction markets often fall under federal oversight. The IRS's silence means traders are left to interpret existing tax law on their own, a risky proposition when billions are at stake.
Some tax professionals advise clients to treat prediction market winnings as gambling income, which is reported as “other income” on Form 1040 and is not subject to self-employment tax. But that approach may not hold if the IRS later classifies these contracts as securities or derivatives. The agency has not weighed in, leaving the door open for future reclassification.
For now, traders are watching for any sign of IRS action. The agency has not announced any plans to issue guidance, and no public comment period has been opened. As the World Cup progresses, the uncertainty only grows.
