IRS doubles-downs on DFS tax debate
US revenue service insists individual DFS transactions count as wagering as 0.25% tax rate looms
America’s Internal Revenue Service (IRS) has reaffirmed its insistence that daily fantasy sports (DFS) is a form of gambling, potentially impacting operator’s taxable incomes.
In a recent memo, the IRS asserted that DFS contests are not wholly games of skill and instead rely on the unpredictability of a player’s performance in return for points.
It is this lack of skill which has pigeonholed DFS alongside wagering, and the IRS has noted that, therefore, operators are liable to be impacted by annual excise taxes.
The memo’s conclusion read: “Any argument a DFS transaction is not wagering because it is based on skill must fail because elements of chance beyond the participant’s control ultimately determine the outcome of the transaction.”
The latest IRS memo marks the second released by the governmental body since August, when it initially decided that DFS contests are taxable.
The memo detailed the 0.25% excise tax which would apply to individual DFS games but not season-long fantasy competitions.
This would equate to around $8m in taxes based on the $3.2bn in total bets placed on DFS competitions in 2018.
The August memo read: “We conclude that any entry fee for a DFS contest constitutes a taxable wager. Any DFS operator in the business of accepting taxable wagers is liable to pay the wagering excise taxes on entry fees/wagers it receives.”
The charge to derive additional tax dollars in the US from DFS operators would impact the likes of DraftKings and FanDuel, although the pair are now fully-functioning sports betting operators in their own right.
In August, DraftKings CEO Jason Robins said the IRS memo was “deeply flawed in its analysis.”