This PredictPedia entry covers a Polymarket contract titled "Sports Prediction Markets taxed as gambling?" The contract asks whether U.S. tax authorities will publish formal guidance treating losses from CFTC-regulated sports event contracts as subject to the 90% loss cap under Section 165(d) of the Internal Revenue Code, as amended by the One Big Beautiful Bill Act (Public Law 119-21) [1]. For purposes of the contract, sports event contracts are defined as contracts whose payoff depends on the outcome, score, or statistical result of an athletic competition listed on a CFTC-designated contract market or swap execution facility [1]. Sports betting, in general terms, is described as the activity of predicting sports results and placing a wager on the outcome [2]. The contract's question is therefore a tax-treatment question layered on top of that activity, not a question about who wins a game. The contract resolves to "Yes" if, by April 15, 2027 at 11:59 PM ET, the IRS or the U.S. Department of the Treasury publishes qualifying guidance that classifies such losses under Section 165(d) [1]. The listed end time for the contract is 2027-04-16T04:00:00.000Z [1]. That date is the contract's closing time under its rules, not an announced date for any IRS or Treasury action. The rules set a specific bar for qualifying guidance. It must appear in the Internal Revenue Bulletin or the Federal Register as one of several listed formats, such as a Revenue Ruling, Revenue Procedure, IRS Notice, or certain Treasury Regulations [1]. Proposed regulations count only if they remain published without withdrawal for at least 30 calendar days after their Federal Register publication date [1]. Guidance must either expressly apply Section 165(d) to these contracts or classify them as wagering transactions for federal income tax purposes [1]. Several types of statements do not qualify. The rules list Private Letter Rulings, Chief Counsel Advice, Tax Court decisions, IRS official statements, Congressional testimony, and web-based publications that do not appear in the Internal Revenue Bulletin or Federal Register [1]. Guidance that classifies these contracts as wagering only for other Code sections, such as Sections 4401, 6041, or 3402(q), also does not qualify [1]. A final and non-appealable U.S. Supreme Court decision holding that these contracts are subject to Section 165(d) would qualify [1]. The contract also resolves to "No" under several listed conditions. These include withdrawal or superseding of qualifying guidance before the deadline, federal legislation that repeals Section 165(d) or exempts these contracts from it, federal legislation that sets an incompatible tax treatment before qualifying guidance is issued, or a CFTC prohibition on listing sports event contracts on all designated contract markets before qualifying guidance appears [1]. The official resolution sources named in the rules are the Internal Revenue Bulletin and the Federal Register [1].

Historical Context

Polymarket was launched in 2020 in Manhattan, New York City, and has legal domicile in Panama [3]. The platform allows deposits of cryptocurrency through the Polygon blockchain network [3]. The supplied sources do not provide a wider history of the federal tax treatment of sports event contracts, so no further historical claims are made here.

Frequently Asked Questions