Ready For Some Football? When It Comes To Gambling, Odds Are The IRS Is Watching, Too

Football is back—and so is sports betting. Betting is huge in the U.S., and no league is more popular for oddsmakers than the NFL. According to the American Gaming Association, NFL bettors are expected to wager around $30 billion on the league this season through legal sportsbooks. That’s an 8.5% increase from last year—and only includes legal bets made at traditional sportsbooks in the U.S.

(It’s no wonder that interest is high. The NFL’s 32 clubs are worth $7.1 billion on average with Forbes ranking the Dallas Cowboys at the top of the valuation list.)

With that amount of money being wagered, there are bound to be bad actors. IRS-CI investigates a variety of offenses tied to illegal gambling and encourages U.S. taxpayers to be smart when placing bets.

Not All Gambling Is Legal

Not every bet is a safe one. IRS-CI reminds you to use state-licensed gambling operations and platforms that are legal in your jurisdiction. According to the AGA, when it comes to sports betting in America, it’s legal in just thirty-nine states and the District of Columbia.

“Over the last few years, we’ve seen a number of online crypto casinos offering options for sports betting,” said IRS-CI Chief Guy Ficco. “These are not legal venues to place sports bets. Many are based offshore and don’t follow Know Your Customer (KYC) protocols, specifically to attract anonymous users who may be involved in illicit activity. If you want to gamble, do it safely and legally.”

Importantly, you should never accept payments to place bets for someone else or gamble to hide the source of funds—you might find yourself involved in a money laundering scheme.

RED44 Gambling Charges and Pleas

If you don’t think that IRS-CI and other law enforcement are watching out for illegal sports betting, think again. Each year, IRS-CI initiates over 30 illegal gambling cases, earning a 92% conviction rate for prosecuted cases. Over the past five fiscal years, 96 defendants have been convicted of crimes tied to illegal gambling, receiving prison sentences averaging between five and 33 months in federal prison.

Earlier this year, ten men pleaded guilty to managing a multimillion-dollar sports betting operation. Timothy J. Pughsley and Nathan Burdette, of Birmingham, Alabama; Christopher Burdette, of Chelsea, Alabama; Thomas Zito of Vestavia, Alabama; Gary Rapp of Lakeland, Tennessee; Mark Giaquinto of Upton, Massachusetts; Matthew Voorhees of Englewood, Colorado; David Richards of Las Vegas, Nevada; and Joshua Gentrup of Athens, Georgia, entered guilty pleas before U.S. District Judge Madeline Haikala in federal court.

According to the plea agreements, Pughsley began operating a bookmaking organization at least 17 years ago. The organization eventually became known as “Red44,” and bookmaking and betting activities occurred online via an offshore server located in Costa Rica.

Here’s how it worked. The RED44 website operated as the “book” for the bookmakers. Think of it as a system that documents bettors’ personal information, bets placed, game odds, winners and losers, amounts paid in or out to bettors, bad debts, and amounts owed to other bookmakers.

According to the government, RED44 was highly organized with multiple levels of leadership that operated similarly to a multi-level marketing scheme. As part of the scheme, each senior agent bookmaker kept a percentage of profits from bookmakers in the organization below them, as well as from their own book of bettors that placed bets directly with the senior agent.

Bookmakers within RED44 were responsible for marketing the website, soliciting new bettors, paying out winnings, and collecting losses from bettors. Generally, bettors placed bets on credit—no money was exchanged through the RED44 website. Agents within RED44 used bank accounts, PayPal, Venmo, CashApp, GooglePay, cash, and virtual currency to move gambling proceeds between themselves and bettors.

How organized was it? Pughsley reportedly organized annual training seminars held each August to prepare the bookmakers for the start of the college football season, when most of the wagers are placed by RED44 bettors during the year. The government estimated that the organization accepted over $2 billion in wagers while RED44 was operational.

How did the feds find out? In 2018, IRS-CI received information on an illegal gambling organization operating in Birmingham, Alabama. An anonymous letter was also mailed to local police and federal agencies, accusing individuals of gambling. The letter also listed several gambling websites—and included names and telephone numbers for suspects. IRS and law enforcement subsequently opened an investigation.

“These guilty pleas are the end result of years of hard work by members of federal and state law enforcement agencies to enforce our nation’s gambling and tax laws,” United States Attorney Prim F. Escalona said. “The defendants illegally accepted millions of dollars in wagers and lived lavishly while avoiding their excise tax obligations. This office will diligently pursue those who enrich themselves in violation of the law.”

“Excise tax evasion and illegal sports betting are not victimless crimes,” said IRS-CI Special Agent in Charge Demetrius Hardeman. “Money obtained from illegal gambling operations is often used to finance other criminal activities. IRS-CI special agents are skilled at following the money to investigate and expose these illegal organizations, who will be held accountable.”

Criminal Charges And Pleas

Each of the defendants named above in the RED44 scheme pleaded guilty to conspiring to operate an illegal gambling business and participating in a money laundering conspiracy. Jonathan Lind of Birmingham, Alabama, also pleaded guilty to conspiring to operate an illegal gambling business.

Conspiracy charges mean that two or more persons agreed to commit a crime, and the defendant joined, knowing the purpose of the scheme and intending to help accomplish that purpose.

Money laundering works this way: criminals get their hands on money through illegal activities, like illegal gambling. They need to get rid of that “dirty” money and replace it with legitimate cash so that it can’t be traced. The easiest way, of course, is to run the cash through a bank or other financial institution and replace those bad dollars with shiny new ones (that’s why federal laws require that large transactions be reported).

While some gambling is legal, it’s a federal crime to own or participate in a gambling business that violates state law when the operation involves five or more people and operates continuously for more than 30 days or grosses $2,000 or more in a single day (yes, it’s incredibly specific). If you tick those boxes, you can be charged federally with the operation of an illegal sports-betting business.

As part of the plea agreements, the defendants agreed to pay more than $19.7 million in restitution to the IRS, and to satisfy any outstanding income tax obligations.

Sentencing for the various defendants was previously set for May, although some of the hearings, including that of Pughsley, have been rescheduled. Pughsley is slated to be sentenced on October 2, 2025.

Gambling And Tax Rules

The overall total tax impact of sports betting revenue is huge. In 2024, it was pegged at $52.7 billion. With those dollars at stake, it’s important to follow tax laws. IRS-CI also encourages taxpayers to report all gambling winnings as taxable income to prevent civil and criminal penalties from the IRS.

Casual gamblers—those who aren’t in the trade or business of gambling—must report and pay taxes on any winnings. That’s not just from sports betting—winnings include those from lotteries, raffles, horse races, and casinos. It also includes cash winnings and the fair market value of prizes, such as cars and trips.

Under current law, you can also deduct your gambling losses, but only if you itemize your deductions on Schedule A. The amount of losses you deduct can’t be more than the amount of gambling income you reported on your return. Importantly, you must keep a record of your winnings and losses. Here’s an example. Let’s assume you have winnings of $50,000 and losses of $50,000. You can deduct all of your losses.

(Professional gamblers—those who consider gambling to be their trade or business—report their gambling activity on Schedule C. Professional gamblers have the benefit of deducting ordinary and necessary business expenses in addition to losses. Any net income is subject to self-employment taxes.)

Under the One Big Beautiful Bill Act, beginning in 2026, you can deduct only up to 90% of the amount of your losses during the taxable year (you can still deduct your related business expenses if you were a professional gambler). Here’s an example: Let’s assume you have winnings of $50,000 and losses of $50,000. You can only deduct $45,000 in losses (90% of $50,000). That means you are paying tax on $5,000 of income even though you broke even at the slots/table/casino.

If you’re not sure what and how to report when it comes to gambling income, check with your tax professional or visit the IRS website.

About IRS-CI

IRS-CI, the sixth-largest law enforcement agency in the U.S., is the criminal investigative arm of the IRS, responsible for conducting financial crime investigations like tax fraud, narcotics trafficking, money laundering, public corruption, healthcare fraud, and identity theft. While other federal agencies also have investigative jurisdiction for money laundering and some Bank Secrecy Act violations, the IRS is the only federal agency that can investigate potential criminal violations of the tax code. The agency has 19 field offices located across the U.S. and 14 attaché posts abroad.

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