Polymarket Sued by New York as Kalshi Lobbies on Tax
A single Thursday produced dueling lawsuits and a Bloomberg exposé on Kalshi's federal tax campaign.
Prediction markets faced a legal and political storm this week: New York and Polymarket filed lawsuits against each other on Thursday alone, while Bloomberg revealed Kalshi's active lobbying campaign to shape federal tax treatment of prediction market winnings, according to SBC Americas.
Why It Matters
The dual Polymarket-New York litigation signals that state regulators are sharpening their enforcement posture toward crypto-native prediction platforms, even as those platforms fight back in court. Kalshi's tax lobbying adds a second front: how the IRS ultimately classifies prediction market payouts — as gambling income, capital gains, or something else entirely — will directly affect after-tax returns for every active participant. Liga MX's lawsuit and PrizePicks' combo product expansion, also flagged in this week's roundup, show that legal and regulatory pressure is hitting the sector from sports-rights holders and daily-fantasy adjacents simultaneously. Taken together, these developments suggest the prediction market industry is entering a high-stakes regulatory maturation phase. Gambling involves real financial risk, and unsettled tax and legal frameworks amplify that uncertainty.
Context
As of September 2026, prediction markets occupy a legally ambiguous space in the United States — regulated as derivatives by the CFTC at the federal level, yet contested by individual states asserting consumer-protection or gambling jurisdiction. Kalshi, which won a landmark CFTC legal battle in 2024 allowing it to offer political event contracts, has since expanded aggressively and now faces the downstream question of how profits get taxed. Polymarket, operating on Polygon-based smart contracts, has historically served U.S. users through regulatory grey areas.
What's Next
The Polymarket-New York litigation will likely produce preliminary injunction hearings within weeks, setting an early signal on whether state courts can compel crypto prediction platforms to cease operations or geo-block users. Kalshi's tax lobbying outcome hinges on Congressional appetite for carve-outs in the current budget reconciliation cycle.
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