The IRS has warned taxpayers to use state-licensed betting platforms and to stay away from illegal, offshore and crypto-based gambling sites. The agency said those platforms can attract anonymous users by avoiding Know Your Customer checks and financial-reporting rules, and it repeated that all gambling winnings must be reported as taxable income.
The warning fits a broader enforcement push. IRS Criminal Investigation said illegal gambling often overlaps with money laundering and other financial crimes. Over the past year, it opened 54 illegal gambling investigations involving $11.5 million linked to an estimated $126 million in laundered funds. The agency said it has won convictions in 84% of prosecuted gambling cases, with average prison terms of 37 months.
The message echoed an earlier Sept. 2, 2025 IRS-CI notice that told sports bettors to “Bet safe. Bet legal.” That guidance also pointed to online crypto casinos offering sports betting and said many were offshore and did not follow Know Your Customer protocols, in part to attract anonymous users.
The IRS also cited recent prosecutions to show how illegal betting can spill into other crimes. It said a California man was sentenced in June to 27 months in prison for tax evasion, operating an illegal gambling business and money laundering after using websites run by his Costa Rica-based business to place bets and laundering millions of dollars. It separately said an Indian national living in Georgia pleaded guilty in May to wire fraud, operating an illegal gambling business and money laundering conspiracy after running betting operations at four Missouri locations disguised as internet amusement, skill game and adult arcades. The agency said he took in about $9.5 million in gross proceeds.
On taxes, the rules are plain. The IRS gambling topic says winnings from lotteries, raffles, sports betting, horse races and casinos are fully taxable for casual gamblers and must be reported on Form 1040 or Form 1040-SR, even if no Form W-2G is issued. Losses can be deducted only if a taxpayer itemises on Schedule A and keeps records, and the deduction cannot exceed gambling income reported.
A separate Casino.org report said the IRS advisory could also leave consumers wondering whether prediction markets are gambling or not. It said New York Attorney General Letitia James called prediction markets gambling platforms “plain and simple”, while the Commodity Futures Trading Commission continued to describe sports trading as an innovative financial product.
