Is Kalshi legal in Illinois?

On April 1, 2025 the Illinois Gaming Board's administrator, Marcus D. Fruchter, emailed Kalshi's chief executive and general counsel a cease-and-desist letter. It says the Board "has reason to believe" Kalshi is "engaging in unlicensed sports wagering in violation of the Illinois Sports Wagering Act, 230 ILCS 45, and Illinois Criminal Code, 720 ILCS 5/28-1(a)". Illinois law defines sports wagering to include "exchange wagering", and no one may run a sports wagering operation in the state without a Board license.

The letter's conclusion: "Kalshi's activity constitutes illegal gambling in violation of Illinois law. Accordingly, Kalshi and anyone affiliated with its operations are directed to cease and desist this illegal activity. Failure to comply may subject Kalshi to civil or criminal penalties." It was copied to the Illinois State Police's gaming command and the Attorney General's office. The Board sent Robinhood a letter of its own the same day, and the court later noted "similar letters to other entities".

A letter is not a court order. We found no lawsuit by Illinois against Kalshi, and no order that switches Kalshi off there. The court fight that followed was brought against Illinois, not by it.

Three suits against Illinois's attorney general and other officials ended up before Judge Martha M. Pacold in the Northern District of Illinois:

• Coinbase Financial Markets (No. 1:25-cv-15406), filed December 18, 2025. Coinbase's users can trade contracts listed on Kalshi with cryptocurrency held at Coinbase, and the court noted that Illinois's threat reached entities "affiliated with [Kalshi's] operations" (p.21). The court heard argument in February 2026 (p.24).
• The United States and the CFTC (No. 1:26-cv-03659), filed in April 2026, joined as intervenors by the Coalition for Fair Markets and Crypto.com's exchange OG.
• Kalshi (No. 1:26-cv-07363, KalshiEX v. Raoul).

On October 2, 2026 the court decided all three together in one memorandum opinion. Both sides had argued about a representative title contract, "will the Chicago Cubs win the 2026 World Series?", and the court limited itself to that kind of contract (p.8). Its main steps:

• Kalshi's title contracts are likely "swaps", because the federal definition reaches a payment that depends on "the occurrence, nonoccurrence, or the extent of the occurrence of an event or contingency" (pp.9-11). Seventh Circuit precedent rules out express and field preemption, so the question was conflict preemption only (pp.8-9).
• Illinois's licensing rules, with their age limit, in-state location rule and limits on which games and data may be used, regulate "what can be sold, as well as where it can be sold and to whom". The court found that "likely constitutes impermissible control over Kalshi or the trading of swaps", and the related criminal provision with it (pp.21-22, 24).
• Illinois argued that a CFTC rule already bars gaming contracts, so its law adds nothing. The court answered that the CFTC "has never held that Kalshi's contracts are impermissible gaming contracts" and supports Kalshi in the case (p.23).
• Illinois's laches argument, that the plaintiffs waited too long to sue, failed for lack of shown prejudice (pp.26-27).

The motions were "granted in part and continued in part" (p.28). The ruling is preliminary, and other courts have read the same definition the other way: on August 28, 2026, in KalshiEX v. Assad, a Nevada case, the Ninth Circuit called the substance of Kalshi's sports contracts "sports gambling, regardless of whether Kalshi calls them swaps" (opinion, p.28). Whether Kalshi is gambling sets out both readings.

Between the February argument and the ruling, Illinois changed its gambling law. Article 130 of Public Act 104-0468 (SB 3019) amended the Sports Wagering Act. It says an "exchange wager" includes "an agreement, contract, transaction, or swap that is offered, traded, or executed on a prediction market or exchange tied to a sporting contest or sporting event", and adds subsection 25-90(d-20):

• a transaction tax "equal to the 1.75% of each exchange wager" on wagers offered under the Act;
• 3.5% of each exchange wager after the first five million a licensee conducts in a fiscal year;
• the money goes to the Sports Wagering Fund and then to the General Revenue Fund.

The governor approved the act on June 16, 2026, and Article 130 took effect that day; only Articles 25 and 65 waited until July 1 (bill status). The text does not say what dollar amount "each exchange wager" is measured on. The court counted it on top of two existing charges: 15% of gross sports wagering receipts and a per-wager fee of 25 or 50 cents (opinion p.3).

The court did not decide whether these fees are preempted. Its preliminary view is that a state can usually impose a cost without a conflict, but that a fee which "effectively regulates the operation of the market" may be preempted, and it asked for targeted briefing and possibly evidence (pp.23-24). The plaintiffs had argued that, depending on how they are calculated, the fees could "effectively operat[e] as an outright ban" (p.24). This is a gambling-statute tax on wagers a licensee offers. It is not an income tax on a trader's gains.

The court has said the injunction requests succeed in part, but the injunction itself is still to be written: the court directed the parties to "confer and file a proposed injunction" by October 29, 2026 (Coinbase docket). Briefing on the fees follows. Illinois sits in the Seventh Circuit, which would hear any appeal from the ruling.

The same federal question is before the Supreme Court in three petitions from other states' cases, none granted. The Kalshi Supreme Court petitions are followed there, and the other states are on Kalshi's state-by-state page.

Illinois's position is that Kalshi's sports contracts are sports wagering that needs a Board license; Kalshi, Coinbase and the CFTC argue they are swaps on a CFTC-designated exchange that Illinois cannot license. The October 2 opinion is about that licensing question. It interprets no part of the Internal Revenue Code, and the IRS has published no guidance on event contracts. The exchange wager tax above is the operator's, separate from anything a trader reports.

Of the filers we've seen, the three most common ways are reporting it as gambling under section 165(d), standard capital gains on Form 8949, and Section 1256's 60/40 split on Form 6781. How Realize builds a Kalshi year under each is in how to file Kalshi taxes.