NYU Tax Law Center urges IRS to tax prediction market sports contracts as gambling
An NYU Tax Law Center analysis argues that sports event contracts on CFTC-regulated prediction market platforms qualify as wagers under federal tax law. The research, published in Tax Notes, urges the IRS to issue guidance on the issue. The analysis adds a tax-policy dimension to the ongoing regulatory debate. NYU experts warn that a wagering classification could trigger a 2% federal excise tax on these contracts. The study comes as federal appeals courts issue conflicting decisions about how such contracts should be regulated.
A gambling tax label would strip prediction market platforms of the capital-gains treatment their traders now enjoy. For Kalshi and Polymarket, that means ordinary-income rates plus a possible 2% excise tax, eroding the user value proposition against offshore competitors. The IRS has never ruled on this question, so the NYU filing gives tax litigators a ready brief to cite in trader audits or platform disputes.
Each new classification fight — tax, swaps, state gambling — multiplies the legal fronts operators must fund. A formal IRS notice would force platforms to restructure withholding and reporting before the next tax season. The NFL's parallel push for state gambling framing gives tax authorities political cover to move aggressively.
Adds the IRS and federal tax code to the running list of institutions now asked to classify prediction market sports contracts as gambling, joining the CFTC's swap-rule push and the Sixth Circuit's Ohio-Tennessee rulings.