IRS silence leaves prediction-market traders and accountants scrambling over tax treatment

Regulatory fog

It has been reported that the Internal Revenue Service has not issued official guidance on how to tax gains from prediction markets — whether they should be treated as derivatives, gambling winnings, or ordinary income. Accountants call it a vacuum of guidance. “It puts the taxpayer in a bad position,” said Patrick Camuso, an accountant who specializes in digital assets. Kalshi declined to comment; the IRS and Polymarket did not respond to requests for comment.

Multiple ways, no map

Platforms like Kalshi and Polymarket exploded in popularity last year, and it has been reported that about 3 percent of Americans used prediction markets — millions of people potentially facing a filing headache. It has been reported that Kalshi saw over $12 billion in monthly trade volume this past March, underscoring why this is no longer a niche tax question. So what do people do? Some treat contracts like financial derivatives, some treat them as gambling and suffer onerous per-session reporting rules, and some report them as ordinary income and cross their fingers.

Practical headaches for users

The lack of clarity creates a real burden. Gambling classification requires tracking each betting session rather than reporting a simple net gain, a paperwork-heavy path that many traders want to avoid. It has been reported that Polymarket and other crypto-based platforms often don’t issue U.S. tax documents, and U.S. users who access them via VPNs must self-report earnings while also risking violation of platform terms. Accountants say they’re handling cases individually and often taking conservative positions to limit audit risk.

What’s at stake

It has been reported that the IRS is in the middle of a significant overhaul, which could reshape how modern, internet-native financial activity is treated — or delay clarity even further. For now, ordinary people who tried to make a few bets on elections or market events are left holding both their wins and a tangle of tax questions. Who pays the price if the agency waits? Hint: it’s the everyday trader, and their accountant.

Sources: wired.com