What Happens for Taxes When a Market Is Disputed, Voided or Resolved Late?

A dispute doesn't create or remove tax by itself, but it can change the amount and the year. A market in dispute across December 31 may belong to the next tax year, because the outcome isn't fixed until it finalizes. A 50-50 resolution pays $0.50 a share, so each share has a real gain or loss. There's no rule specific to any of this. Use the final resolution date and apply it consistently.

OddsFile is software, not tax advice. The IRS has not issued guidance on how prediction-market contracts are taxed. This article explains the options and the sources behind them; a tax professional can tell you which position fits your situation.

How markets resolve

Polymarket. Its resolution docs describe UMA's Optimistic Oracle. Someone proposes an outcome and posts a bond, typically $750, and there's a 2-hour challenge period. If undisputed, the market resolves about two hours later. A dispute starts a new proposal, and a second dispute goes to a UMA token-holder vote. Disputed resolution takes 4 to 6 days in total. A rarely used Unknown or 50-50 result has each token redeem for $0.50. Polymarket says it cannot reverse a finalized resolution.

Kalshi. Its API documentation describes a settlement timer, during which a determined result may be disputed; a disputed market may be re-determined, and the timer restarts. Combos get a separate review. Kalshi's combos help notes fair-price settlement for some components.

Which year?

Under capital treatment, a loss has to be fixed by identifiable events in a closed and completed transaction. While a result is in dispute, it isn't fixed. That favors the finalization date, and it's the date we'd start from. But the rules don't speak to this directly.

For gains, the same idea applies. If you can't redeem until it's final, you have no fixed right to the money.

Example: a year-end dispute

A market ends on December 30, 2026. A proposal is disputed, and UMA's vote finalizes on January 4, 2027. You hold 2,000 YES at a $0.40 cost, and YES wins.

The amount doesn't change. The year does. If you have 2026 losses to use, you may prefer 2026. Your position shouldn't depend on which you prefer. Pick the rule first, and use it for all markets. See unredeemed losing positions, which explains the rule OddsFile uses for losers and how it flags borderline cases.

Selling during a dispute

If you sell your shares while the result is contested, that's a clean disposal on the sale date, with a known price. Prices during a dispute often move sharply. If you need the certainty of a 2026 disposal, a sale gives it, at a cost.

The 50-50 resolution

Each share pays $0.50 instead of $1 or $0. Your result depends on your cost.

It isn't a refund, because you don't get your cost back. You get a fixed $0.50, whichever side you were on, so report it like a normal redemption with $0.50 proceeds. If you hold both YES and NO, each side has its own result.

Under gambling treatment, a per-market session nets YES and NO into one figure.

Voided or cancelled markets

If a venue returns your cost, you have no gain, and your cost basis matches what came back. Fees that aren't returned are a small loss or an expense, depending on your treatment. Keep the notice from the venue. Kalshi's combo pages say combos generally aren't voided or refunded, so read the rules for your specific market rather than assuming.

Re-determined or corrected results

On Kalshi, a re-determined market may change a result after you first saw it. If a correction happens before year end, simply use the final one. If it lands in a later year, you may have a question about which year the correction belongs to. If you reported a gain in 2026, and a correction in 2027 takes the money back, the IRS claim of right rules may be relevant. Bring it to a preparer.

If your statement changes after you've filed, check whether amending is needed. Kalshi's statement updates monthly, so download yours after the last month has settled.

What about the bond?

If you propose or dispute, you post a bond and can earn or lose it. That's separate from your position. A bounty you earn is likely income. A bond you lose is likely a loss, though what kind isn't clear. No rule covers it, so ask your preparer, particularly if you do this often.

Clarifications

Polymarket's additional context updates can shape how a market resolves, but they have no tax effect themselves. Keep a copy if the outcome is contested.

Records for a disputed market

1. The market page, with rules and any clarifications
2. Proposal, dispute and final dates
3. Final outcome and payout per share
4. Your position's cost and any sale
5. Which date you used

Run the free OddsFile check: paste a Polymarket address and see your 2026 P&L under each treatment, no signup. For year-end planning, see open positions at year end.

FAQ

Is a 50-50 resolution a refund?

No. It's a $0.50 payout per share, which gives you a gain or loss based on your cost.

My market ended in December but resolved in January. Which year?

It's unsettled, but finalization is the natural starting point. Apply one rule across markets.

Do I need to redeem to count the result?

Generally no. Redemption is when you collect. The result is fixed at resolution.

Can I deduct a lost UMA bond?

There's no rule for it. Talk to a preparer.