The Internal Revenue Service (IRS) still has not said whether Americans trading World Cup contracts on prediction platforms should pay tax as gamblers or investors. The lack of such an answer means that two people who supported a specific match will end up paying vastly different amounts of tax on it.
A gambler is expected to report his winnings to a sportsbook. The user of the prediction markets can claim that he won money via a financial transaction.
The US federal tax laws are more favorable towards many types of investments as opposed to betting. The classification of an investment will allow the bettor to claim the total loss incurred and in a more assertive approach to tax, he can ask for a reduced tax rate on some portion of his gains. The classification of a gamble will limit the deductions.
Prediction platforms use financial contracts while tax law still looks at the actual bet
As you may be aware, companies offering such prediction markets have claimed that their services are not typical bets. Instead, the users are buying and selling pre-set contracts relating to an outcome in the future. The deal goes through the channels designed for financial trading. This way, the person placing the money does not just make a bet with the bookmaker until he gets the result.
The opponents, on the other hand, emphasize the customer’s actions. The money is spent on something that cannot be known ahead of time, and the client wants more if his bet is correct. This type of analysis has been done many times in courts and by the IRS; they do not necessarily accept the name of the activity but its essence.
White & Case has said gambling proceeds fall under IRC Section 61 as ordinary taxable income. The firm also noted that IRC Section 165(d) limits gambling-loss deductions to the amount of gambling winnings. A foreign person who places a U.S. wager can also create American-source income, with a 30% withholding charge applied under the relevant rules.
The rules become harsher for U.S. taxpayers from the 2026 tax year. The One Big Beautiful Bill Act allows people reporting gambling income to use only 90% of their losses against their winnings. That means someone who wins and loses the same total could still owe tax on part of the activity.
Regulators leave traders with three possible tax paths and no direct IRS answer
Kalshi rejects the casino label and says its products are futures contracts overseen by the Commodity Futures Trading Commission. Its contracts settle at fixed values based on whether the listed event ultimately happens. BRC has said the final tax result may depend on the contract itself. A filing could fall under gambling rules, capital-gain rules, or IRC Section 1256.
Section 1256 uses yearly mark-to-market accounting. It treats 60% of a net gain as long-term and the remaining 40% as short-term, even when the position lasted only a brief period. That split can produce a lower bill than ordinary income treatment for some taxpayers.
Still, a CFTC connection does not guarantee access to Section 1256. Monaco CPA has said a contract must trade on a qualified board or exchange before that section can apply. Registration with the regulator, by itself, is not enough.
Such products have been called “binary options,” which constitute swaps by the CFTC, a phrase that might allow these products to fall within the exemption provided under Section 1256(b)(2)(B). Congress included this exemption to ensure that certain swap contracts did not qualify for the 60/40 rule.
The absence of any guidance on the prediction market issue is not similar to what has been issued regarding the tax instructions on other individuals who participated in the tournament. As of April 1, the IRS issued instructions on withholding agents on the 30 percent withholding requirement on compensation earned from U.S. sources by foreign athletes and foreign entities.
An agreement was later concluded between the agency and Canada Revenue Agency on June 10th. The two authorities agreed that the revenue earned by players and teams be split among host countries according to where the game is taking place. There has not been any comparable statement regarding prediction agreements for the World Cup matches.
