FSGA is actively monitoring and engaging on a developing federal tax issue that could have long-term implications for the fantasy sports industry.

At the center of this issue is the federal excise tax on wagers (Internal Revenue Code Section 4401) and recent Internal Revenue Service (IRS) internal guidance suggesting that daily fantasy sports (DFS) contests could be treated as “wagering” for tax purposes.

While this interpretation has not yet been formally adopted, it introduces uncertainty that could impact operators, players, and the broader ecosystem.

What’s Driving the Concern?

In 2020, the IRS issued internal guidance indicating that DFS entry fees may qualify as wagers under federal tax law. This position differs from the industry’s longstanding view that fantasy sports contests are skill-based competitions with fixed prizes.

Importantly, this guidance is not formal rulemaking, and there remains no clear, binding direction from the IRS. However, the existence of this interpretation creates a level of ambiguity that warrants proactive engagement.

Why This Matters

This issue goes beyond a narrow tax question — it has broader implications for how fantasy sports are treated at the federal level.

For Operators

• Potential exposure to federal excise tax obligations.
• Increased compliance and reporting requirements.
• Continued regulatory uncertainty that may impact business planning and investment.

For Players

• A potential shift from annual tax reporting (Form 1099) to event-level reporting (Form W-2G).
• Increased complexity in how winnings are reported and taxed.
• Possible withholding at the contest level, which could create confusion and a more fragmented user experience.

For many players — particularly casual participants — this type of reporting shift could make participation more complicated and less intuitive.

The Broader Industry

This is not simply about tax liability; it is about classification.

How DFS is treated under federal tax law could influence how it is viewed across other regulatory frameworks. As a result, this issue has implications for innovation, growth, and consistency across jurisdictions.

FSGA’s Approach

FSGA has engaged legal counsel at Miller & Chevalier to support a strategic, phased approach to this issue, focused on working directly with federal policymakers.

The goal is to:

• Seek clarity on the current interpretation.
• Advocate for a framework that reflects how fantasy sports operate today.
• Reduce uncertainty for both operators and players.

This effort will involve engagement with the U.S. Treasury Department and the Internal Revenue Service, along with the development of a formal industry position.

What’s Next

FSGA will continue to keep members informed as this work progresses.

At this stage, there are no immediate changes to current operations or reporting requirements. However, this is an issue we believe is important to address proactively to help protect the long-term stability and growth of the fantasy sports industry.

We encourage members to stay informed and reach out with any questions or perspectives as we move forward.