Event Contract

An event contract is a financial instrument that pays a fixed amount if a specified event occurs and nothing if it doesn't. In prediction markets, event contracts are structured as YES/NO pairs priced between $0.00 and $1.00.

How event contracts work

• YES shares pay $1.00 if the event occurs, $0.00 if it doesn't
• NO shares pay $1.00 if the event doesn't occur, $0.00 if it does
• YES + NO prices always sum to approximately $1.00
• The price reflects the market's implied probability of the event

Example

"Will the Fed raise rates in March?" — YES is trading at $0.65 (market thinks 65% likely). If you buy 100 YES shares at $0.65 ($65 total) and the Fed does raise rates, you receive $100. Your profit is $35.

Tax classification debate

The IRS has not definitively classified event contracts. They could be treated as:

• Capital assets (like stocks) — reported on Form 8949
• Section 1256 contracts (like futures) — if CFTC-regulated
• Ordinary income — reported on Schedule 1
• Gambling winnings — reported as other income

This ambiguity is exactly why predictiontaxes.com calculates all four methods so you can compare.