The IRS has long been quick to issue guidance when new financial products create tax uncertainty. When cryptocurrency emerged, the agency moved swiftly to clarify how digital assets should be reported. But with prediction markets now handling billions in wagers, the IRS has stayed conspicuously quiet—a silence that looks increasingly suspicious given the Trump family's financial entanglements.
Donald Trump Jr. serves as a paid strategic advisor to both Kalshi and Polymarket, the two largest prediction market platforms, and holds financial stakes in each. His father, President Trump, has appointed close allies to lead the Treasury and the IRS—Secretary Scott Bessent is acting IRS commissioner, and Frank Bisignano serves as the agency's first CEO. The question is whether that proximity explains the absence of tax guidance.
Prediction markets allow users to buy and sell event contracts priced from one cent to 99 cents, reflecting the probability of a given outcome—from election results to snowfall totals. They have exploded in popularity, rivaling traditional sportsbooks, and the tax treatment of winnings and losses remains unresolved. Some experts argue gains should be taxed as ordinary income, others as capital gains, and some say a hybrid approach is needed. Losses are equally murky: are they subject to gambling loss limits or not?
Normally, the IRS would step in to settle such questions. But it hasn't, and the reasons may be political. With Bessent and Bisignano both loyal to the president, it is plausible that Trump Jr. or his father could exert quiet pressure to keep the agency from acting. Such a move would allow taxpayers to take aggressive positions, potentially costing the Treasury billions in uncollected revenue while Trump Jr. profits from his advisory roles.
Critics see a clear conflict of interest. If the IRS issued favorable rulings, taxpayers might abandon traditional gambling platforms, devastating casinos and related industries. But silence serves the Trumps' interests, leaving the door open to both favorable interpretations and legal challenges. The situation has drawn parallels to the growing concern that prediction markets are turning public events into trading floors, with little regulatory oversight.
Two steps could address the issue. First, the Treasury Inspector General for Tax Administration should investigate whether undue pressure was placed on the IRS to avoid issuing guidance. Second, the IRS should issue a ruling that prediction market gains are ordinary income and losses are subject to the same limits as gambling losses—a straightforward, sensible approach that aligns with the nature of these wagers.
So far, neither step has been taken, and the silence continues. The stakes are high, not just for taxpayers but for the integrity of the tax system. As the legal battles over state authority on prediction markets reach the Supreme Court, the federal government's inaction on tax policy becomes harder to ignore.
The public is left to wonder whether the IRS is simply slow to adapt or whether the Trump family's financial interests are shaping policy behind closed doors. Until an investigation is launched or the IRS issues a ruling, the uncertainty will persist—and the bets keep coming.
