The IRS has determined that daily fantasy sports are games of chance, not games of skill. Consequently, entry fees represent wagers, and are deductible under Section 165(d).
This decision will have a larger impact than allowing itemized deductions on a participant’s taxes. The IRS is using this ruling to confirm an earlier opinion that daily fantasy sports are gambling.
Earlier this year, the IRS published a memo stating that the entry fees paid to participate in daily fantasy sports are subject to an excise tax. This excise tax ranges from 0.25% to 2% per wager, and already applies to all conventional sports wagers.
Should the IRS begin to enforce this position and and impose the excise taxes in full, it would create millions of dollars in tax liability for the biggest fantasy sports operators. Smaller players may be forced out of the space altogether.