Bet on it: The Trumps’ ties to prediction markets will become the IRS’s problem

Two interesting phenomena are simultaneously unfolding. Despite billions of dollars being wagered in prediction markets, the IRS has remained uncharacteristically reticent on the associated tax implications of such transactions. At the same time, Donald Trump Jr. is being handsomely compensated as a strategic advisor for both Kalshi and Polymarket, the world’s two largest prediction market players, both of which he owns financial stakes in. 

The question is, are the two related, or is this a mere coincidence? The dots appear inextricably connected.

First, consider some background. Traditionally, when the public faces a challenging tax issue requiring resolution, the IRS expeditiously issues rulings to provide necessary guidance. An emblematic example of this is when cryptocurrency was in its infancy, and taxpayers were unsure how to report its use. The IRS jumped into action and issued a clarifying notice that made its stance clear.

While the IRS’s actions are steeped in convention, prediction markets are still somewhat new, only coming into vogue in the last year or two. They enable participants to calibrate whether a particular outcome will transpire through event contracts priced from 1 cent to 99 cents. The lower the price, the lower the probability and the higher the possible return; the higher the price, the higher the probability and the lower the........

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