IRS silent on prediction market tax treatment as trader uncertainty grows
The Internal Revenue Service has not issued any guidance on how prediction market winnings and losses should be taxed. Tax experts say the silence leaves traders uncertain about their reporting obligations. No timeline for IRS action has been disclosed. The uncertainty affects individual traders using platforms like Kalshi and Polymarket as the current tax year progresses.
Traders on Kalshi and Polymarket face a concrete risk: they must file 2026 returns without knowing whether winnings qualify as ordinary income, capital gains, or gambling proceeds. Each classification carries different rates, deduction rules, and documentation requirements. The lack of guidance pushes compliance costs onto individual filers and their accountants, who must choose between conservative overpayment and audit exposure.
The CFTC's jurisdictional claim does nothing to resolve tax questions. If the IRS delays into 2027, traders who underreported based on reasonable assumptions could face penalties retroactively. For the platforms, user anxiety over tax surprises becomes a churn driver at the moment they are scaling to mainstream adoption.