Criminal Tax Investigations Involving Gambling Winnings: What Bettors Need to Know

The Internal Revenue Service (IRS) has prioritized enforcement related to gambling winnings in recent years; and, with the Big Beautiful Bill limiting deductible gambling losses to 90 percent, many gamblers are likely to face substantial tax burdens in 2026. As a result, many gamblers are likely to face scrutiny from the IRS as well—and this scrutiny could present risks for criminal charges in some cases. Learn more from Washington D.C. tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group:

IRS: Gambling Winnings Are Taxable

The IRS’s position on gambling winnings is clear: Gambling winnings are taxable, and taxpayers must report all winnings from casinos and online platforms on their federal returns. This applies to both casual gamblers and those for whom gambling is their trade or business—in the latter scenario, gamblers are classified as self-employed, and they must report their revenue to the IRS just like any other business owner.

Historically, in addition to having the obligation to report their gambling winnings, bettors have also had the opportunity to deduct all of their gambling losses. As a result, if a bettor suffered net losses of the course of the year, then they would not have any taxable income.

However, this changed with the enactment of the Big Beautiful Bill on July 4, 2025. Starting in 2026, gamblers will only be able to deduct up to 90 percent of their losses (although efforts are underway to repeal this portion of the law). As a result, some gamblers may need to pay federal income tax on “phantom” income—meaning that they will owe money to the IRS even though they suffered a net loss from their gambling or gaming activities.

But, even if a bettor has positive net income, only being able to deduct 90 percent of their losses could still have a huge impact on their federal tax liability. This is almost certainly an issue to which the IRS will be paying close attention in 2026.

Underreporting Taxable Gambling Income Can Trigger a Criminal Tax Investigation

Along with conducting civil audits, the IRS also conducts criminal tax investigations when warranted. These investigations can expose taxpayers to fines and prison time for tax fraud, tax evasion and other federal tax-related offenses. As a result, if you find yourself facing scrutiny from the IRS related to your gambling wins or losses, it will be important for you to consult with an experienced Washington D.C. tax attorney right away. While it may be possible to avoid criminal charges in this scenario, doing so will require an informed and proactive defense strategy—and it will be important to have an experienced attorney who can communicate effectively with IRS investigators on your behalf.

Contact Washington D.C. Tax Attorney Kevin E. Thorn

Kevin E. Thorn, Managing Partner of Thorn Law Group, is a skilled Washington D.C. tax attorney who has extensive experience representing clients during criminal tax investigations. If you would like to request a consultation with Mr. Thorn, please call 202-349-4033 or contact us confidentially online today.