Two US tax professors have called on the IRS to clarify tax treatment for prediction markets. Jay Soled of Rutgers Business School and Mirit Eyal-Cohen of the University of Alabama argue that user gains on such platforms should be taxed as ordinary income, with losses subject to the same restrictions as gambling.
Global monthly trading volumes on leading prediction markets rose from $5bn in September 2025 to $24bn in April 2026. Legal US sportsbooks handled an average of $14bn per month during 2025. But uniform reporting rules for users remain absent.
The professors argue that most retail prediction market users are effectively wagering, not investing. Contracts on events can be bought and sold before settlement, like financial assets, but the outcome remains binary: one side wins, the counterparty loses. 'Technological novelty should not obscure the familiar distinction between an investment and a wager,' they write in Tax Notes.
Lack of clarity creates a risk of competitive distortion. If prediction market users gain the right to deduct losses without restriction, as with investments, it would give them an advantage over traditional sportsbook customers. The professors warn such a situation could 'bury traditional gambling'.
One exception applies: commercial hedging. A company whose revenue depends on weather can use weather contracts to protect against losses. That is investment, not entertainment. The professors propose preserving separate treatment for such cases.
