The Oklahoma Bar Journal May 2026

If the contract is a capital asset outside §1256, the usual capital gain and capital loss rules apply. That can be better or worse depending on the client’s other capital posi tions and ability to use losses. 26 The reporting mechanics may matter as much as the label. Wagering often produces gross income with any loss offset con strained by §165(d), while capital and derivatives regimes more often compute gain or loss within their own buckets. That can affect AGI and other limitation questions even when the economics look similar. For now, the safer practitioner view is simple: Event contracts are a product category with open tax-characterization questions, not a settled tax strategy. Federalism: Preemption in Brief Even if the tax result was clear, the legal-access question remains: Can a client lawfully trade sports event contracts in a state that treats sports wagering as illegal? The exchange-side argument relies on the CEA’s exclusive jurisdiction clause and the contention that state gambling laws are preempted as applied to a CFTC-listed contract. The state-side response is that these contracts function as sports wagers within the state’s traditional police power and that the CEA’s special rule for event contracts (including “gaming”) signals that Congress did not intend blanket displace ment of state gaming law. 27 Until appellate courts or the CFTC provide clearer boundaries, Oklahoma practitioners should treat preemption as a still-contentious theory. Clients who want to trade these products should be advised that 1) enforcement posture varies by state, 2) litigation outcomes

For now, the safer practitioner view is simple: Event contracts are a product category with open tax-characterization questions, not a settled tax strategy.

framework and the code provi sions that actually apply. Several paths are plausible. If the contracts are treated as wagers, §165(d) remains the problem. If they fall within a derivatives regime, such as Code §1256, timing and character may change materially, but so may loss limitations and mark-to-market consequences. If they are treated as capital positions outside Code §1256, ordinary capital gain and capital loss rules come into play. Listing on a regulated exchange may matter, but it does not, by itself, answer the tax question. If the contracts are treated as wagering transactions, the taxpayer is back in familiar §165(d) territory, including the new 90% limitation. In that world, event contracts are simply a different wrapper for the same deduction problem. 23 If a contract actually qualifies for §1256, year-end mark-to-market and 60-40 capital treatment can change the result materially. That may help some clients and hurt others, as §1256 brings its own constraints. 24 It remains a capital regime, and special loss rules and carryback limits can matter just as much as rates. 25

and enjoined the commission from enforcing it. The D.C. Circuit denied a stay, and in May 2025, the com mission voluntarily dismissed the appeal. 21 After the 2024 election season, sports contracts became the next battleground. On Jan. 24, 2025, Kalshi self-certified sports event contracts, and several states quickly responded with cease and desist letters and related enforcement threats. The early rulings have split: New Jersey granted prelim inary relief, Maryland refused it, and Nevada later dissolved the interim relief it had previously entered. The takeaway is narrow but important: The preemption issue is live, fact-sensitive and unsettled. 22 Tax Characterization: No Easy Workaround Because amended §165(d) now disallows part of aggregate wager ing losses for some high-volume bettors, the natural question is whether event contracts can avoid the wagering loss limitation. That instinct is understandable. However, the tax answer does not turn on branding but, rather, the instrument, the trading

Statements or opinions expressed in the Oklahoma Bar Journal are those of the authors and do not necessarily reflect those of the Oklahoma Bar Association, its officers, Board of Governors, Board of Editors or staff.

38 | MAY 2026

THE OKLAHOMA BAR JOURNAL