IRS Warns Against Illegal Gambling and Crypto Betting Platforms

The Internal Revenue Service (IRS) has issued a stern warning to sports bettors as the busy football season approaches. The agency is reminding the public to utilize only state-licensed sportsbooks to ensure tax compliance and personal protection. According to the IRS, illegal gambling is frequently linked to broader criminal activities, including money laundering and tax fraud. Authorities are focusing on dismantling criminal networks by following the money trails associated with unlawful betting operations. There is a growing concern regarding anonymous crypto-based platforms that deliberately avoid reporting obligations.

Jarod Koopman, Chief of IRS Criminal Investigation, emphasized that their work goes beyond just stopping unlawful bets. By investigating these financial flows, the agency can target larger organized crime structures. Taxpayers are reminded that ignorance of the law is no excuse. All gambling winnings, regardless of whether they come from a licensed or unlicensed source, must be reported as taxable income. However, the legal landscape in the United States remains complicated due to conflicting views from different regulatory bodies regarding newer forms of betting.

„Illegal gambling isn’t just about placing unlawful bets. Our investigations routinely uncover money laundering and tax crimes tied to illegal gambling operations. Following the money allows us to dismantle larger criminal networks.” - Jarod Koopman, Chief of IRS Criminal Investigation

Numbers and facts

Prediction markets have become a major point of contention. While the Commodity Futures Trading Commission (CFTC) maintains exclusive jurisdiction over these platforms, calling them innovative financial products, state officials disagree. New York Attorney General Letitia James has stated that regardless of their branding, these are gambling platforms operating illegally without state licenses. This disagreement leaves taxpayers in a difficult position. Former IRS special agent Ryan Schutz noted that users are receiving a lot of conflicting guidance, making it unclear how to properly file earnings.

Specific tax changes implemented during Donald Trump's presidency have also altered the stakes. Currently, gamblers can only deduct up to 90 percent of their losses against their winnings for federal tax purposes. For example, a bettor with $100,000 in winnings and $100,000 in losses would still owe federal taxes on $10,000. Additionally, the IRS has indicated that entry fees for daily fantasy sports (DFS) are considered wagers. This could have massive financial implications for industry leaders like DraftKings and FanDuel, as the sector collected $3.2 billion in entry fees back in 2018.

Background

The line between financial investing and gambling is becoming increasingly blurred. Prediction markets often mirror the functionality of traditional sportsbooks, yet they lack clear federal tax reporting rules. Many of these platforms utilize blockchain technology to offer anonymity, which the IRS warns is a major red flag. By avoiding Know Your Customer (KYC) protocols, these platforms attract users looking to bypass financial reporting duties. The IRS continues to urge the public to stick with regulated state platforms to avoid being caught in criminal investigations.

Why it matters for German players

For players in Germany, the situation underscores the importance of the State Treaty on Gambling 2021 (GlüStV 2021). While the U.S. struggles with federal versus state definitions, Germany has a clear whitelist managed by the GGL. Playing on unlicensed offshore or crypto platforms carries significant risks, including the lack of player protection and potential issues with anti-money laundering laws. In Germany, licensed operators must enforce a 1,000 Euro monthly deposit limit and a 1 Euro limit per spin on slots. These regulations are designed to prevent the very issues the IRS is currently highlighting in the American market.

What it means for GGL-licensed casinos

Licensed German operators can view these international developments as a validation of strict regulatory frameworks. While complying with LUGAS and OASIS requires significant investment, it provides a safe environment that unregulated markets cannot offer. The GGL actively pursues illegal operators through payment blocking and other enforcement measures. As the IRS targets anonymous platforms, it highlights the global trend toward transparency in the gaming industry. For GGL-licensed casinos, maintaining high compliance standards remains the best way to distinguish themselves from the risky "grey market" mentioned in the IRS advisory.