Crypto tax uncertainty leaves U.S. iGaming operators in limbo
In Part 1 of our exclusive three-part series, we explored the multi-state maze of U.S. iGaming tax laws and the growing compliance pressures operators face. Now, in Part 2, we turn to crypto, where innovation is racing ahead of regulation, and tax guidance is still playing catch-up. With expert input from Robert Stoddard, KPMGs Lead U.S. Tax Partner for the gaming industry, we examine how the rise of digital assets is reshaping risk, regulation, and reporting for U.S. iGaming operators long before the rules are ready.
Cryptocurrency may offer significant potential for further innovation within the iGaming industry, but the landscape surrounding its taxation remains unclear. While cryptocurrency grows rapidly, regulatory frameworks and tax laws often lag behind. Operators are still awaiting guidance from U.S. regulators regarding the acceptance of crypto deposits. Additionally, integrating cryptocurrency into iGaming and sports betting could introduce various complexities, such as challenges in tracking deposits, conversions, wins or losses, and ensuring compliance with U.S. player information reporting requirements, which may become more intricate as cryptocurrency use expands.
As cryptocurrency gains traction in iGaming, a range of questions emerge, such as whether U.S. regulators will permit its use, how custodial regulations will impact operators accepting crypto deposits, and who will be responsible for reporting transactions. Operators may also face challenges in navigating compliance, especially given the possibility of varying state tax rules for crypto transactions in gaming. Moreover, the acceptance of digital assets may introduce business risks that operators will need to manage.
In some ways, its already here
A in the U.S. represents the first-time patrons can use digital assets to directly fund gaming transactions at a 바카라. The collaboration leverages a regulated payment platform widely used across the industry and the industrys sole provider of 바카라 chip access via cryptocurrency to allow patrons to convert certain digital assets into 바카라 chips, thereby removing a significant banking friction point. U.S. iGaming and sportsbook operators are watching this move closely and weighing what it could mean for their next steps. As explored in a recent SiGMA News article, tribal operators are actively testing the boundaries of digital innovationcrypto included.
What the IRS thinks of crypto
The U.S. Internal Revenue Service (IRS) currently classifies cryptocurrency as property, not currency. This means that every crypto transaction potentially triggers a taxable event. Using crypto in gambling, unlike traditional cash gambling that taxes net winnings, creates added complexities in characterisation and reporting.
- Capital Gains Tax C Under current guidance, using crypto to make a purchase, place a wager, claim winnings/withdraw, or convert crypto into fiat currency within a player account may be considered a taxable sale or exchange transactions. Because of the frequent fluctuations in digital asset values, players may recognise taxable income or losses multiple times over the typical gambling transaction cycle, depending on the passage of time and value changes.
- Tax Withholding C Operators would need to withhold any required taxes on payouts made in crypto, just as they do for cash winnings. The blurred lines between crypto use and gambling income combined with vague IRS rules are turning basic reporting into a complex risk zone. Even with the recent repeal of the U.S. Digital Asset Regulations applicable to DeFi platforms, iGaming and sports betting operators may need to monitor future developments and assess whether they might be considered custodial brokers of digital assets.
- Volatility Impact C The fluctuating value of crypto means that winnings could be taxed at different rates based on when they are realised.
State-by-state differences
Each state potentially handles crypto transactions differently. If and/or when crypto becomes a permitted source of funds for U.S. iGaming and sports betting players, gaming operators will face even more regulatory uncertainty. The U.S. state-by-state tax map for iGaming and sports betting is a puzzle. Crypto may add additional pieces to the mix, even in states that initially appear more receptive to the broader use of digital assets. Without a uniform approach, operators expanding across multiple states will likely need to juggle different compliance obligations, further complicating tax reporting.
KYC, AML, and tax reporting: Are iGaming operators ready?
Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations are already strict for traditional iGaming and sports betting transactions. Still, the potential future use of crypto would likely be even more challenging.
- 바카라er Identity Verification C Unlike fiat transactions, crypto payments can be pseudonymous, making tracking player wagers and winnings harder and ensuring proper tax reporting even more critical.
- AML Compliance Risks C It is no surprise regulators are circling crypto in general. Operators who arent on top of their transaction tracking may be on borrowed time.
- Tax Reporting Obligations C Some states may require operators to report crypto transactions just as they would traditional gambling winnings. Yet, the potential bifurcation between a gambling transaction and a recognition of a gain or loss related to fluctuation in digital asset values within a related or connected transaction chain potentially makes future information reporting obligations more complex.
Operators must ensure their tax reporting methods align with evolving regulations while avoiding penalties for non-compliance.
Whats next for crypto taxation in iGaming?
Theres more opportunity and focus on crypto in online gambling these days, and its coming from the top. These are the changes worth keeping an eye on if and/or when U.S. operators are allowed to accept crypto deposits:
- Potential IRS Guidelines C , and will it provide adequate clarity with respect to the taxation of crypto winnings and other recognition transactions?
- State-Specific Legislation C A few states are considering crypto gambling regulations, but there seem to be divergent views on how it should work.
- Stronger Enforcement Measures C Regulators are cracking down on unlicensed crypto 바카라s, which could lead to stricter compliance requirements for regulated operators.
- Cross-Border Considerations C Tax treaties and jurisdictional conflicts may complicate compliance efforts as international operators enter the U.S. market.
Crypto tax laws are still a moving target. Operators need tax plans that can flex with future regulations because waiting for a clear and consistent framework across the U.S. may leave some behind.
A tax headache thats not going away
The crypto side of iGaming keeps moving, but tax law hasnt kept up. Hoping for clarity isnt a game plan. The message is to sort it now, or brace for someone elses version.
The lack of clear tax rules leaves the industry guessing, and thats not a great place to be. Operators would be well-suited to focus on the potential market opportunities, identify substantive approaches to integrating crypto into their operating plans, consider processes to adapt to changing laws and tax regulations, and lock down their potential strategies ahead of time.
In Part 3, we go global, looking at how UK operators can expand into the U.S. without falling into the most common cross-border tax traps.
*Robert is a Partner in KPMGs Stamford Business Tax Services practice with 23 years of experience in tax planning, compliance, and income tax provisions. He has served domestic and multi-national clients in a wide range of industries and is currently the lead tax partner for KPMGs U.S. Gaming practice.
