Disagree with calculation of 1099 Income

[Macro_Man]

I received a 1099 from PredictIt, a political prediction market website where users can trade on events such as U.S. elections or congressional action. PredictIt operates with the permission of the CFTC, and thus is not considered gambling. 

In the 1099 I received, PredictIt reported I made $3,990 of "Other Income" from their platform. However, I believe their calculation methodology is flawed. 

I deposited ~$100k into my PredictIt account (PredictIt does not charge any fees to deposit). 

Through profitable trades on the platform, I made $4,200 in profits, brining my account total to $104,200 (after a 10% fee on profits, which is assessed at the time you exit a winning trade). 

However, PredictIt charges a 5% fee to withdraw funds from your account.  Therefore, after withdrawing all my funds, I was only left with $98,990, a loss of $1,010 from the original amount I deposited. 

Yet, for the purpose of calculating my taxable income, PredictIt only assessed the 5% withdrawal fee on the $4,200 in profitsI I made (even though the 5% is charged on the full balance) . Therefore, PredictIt reported I made a taxable income of $4,200*.95 = $3,990. 

I could understand the logic if PredictIt were to argue withdrawal fees should not be included at all in the calculation of taxable income (similar to how commissions are not deducted from capital gains). However, the fact they include it, but only on the profitable portion of my balance, makes no sense. 

I reached out to PredictIt and asked them to explain their rationale for calculating it in this way. However, if they refuse to make any changes, do I have any options? 

It seems ludicrous to be taxed on money I never actually received. 

Thanks for your help!

[WendyN2]

To answer your question, unfortunately, although you have some options, the IRS will receive on the Company's 1096 exactly what was reported to you on your 1099, so even if you adjust it "accordingly" on your end when entering the information, the IRS will likely process your return, but in time send you an "adjustment letter" charging you for what they see on their end the "short payment" of taxes on your part. You could wait on filing and insist that the Company send you a corrected 1099, but it sounds like you haven't had much luck at all with them thus far. Check closely with the original agreement you signed prior to depositing your funds into the account to see what the fine print says. 

[Macro_Man]

Thanks for the response, WendyN2.

I reviewed the term of use agreement. Unfortunately, they do not address the company's calculation of trader net profit or taxable income. 

If I adjust the 1099 calculation accordingly on my end, and submit documentation with my return showing my efforts to to address the issue with the company and provide evidence showing my withdrawals from the company were less than the amount deposited, would the IRS manually review the situation and decide which party is making the proper calculation? 

[WendyN2]

Not necessarily, as the initial IRS "review" might just be a computer-generated review of attempting to tie out what was reported to them versus what you are reporting. I would not suggest you alter the 1099 in any way, but what you could do is report it on a Schedule C (or "other income", depending on which one is more favorable to you given the rest of your tax situation) and offset the "gain" they have reported with the fees you incurred - and throw in a portion of your internet bill, too, as you use that computer to trade online, after all! Again, which ever scenario (Sched C 1099 income with expenses to offset or "other income" left alone) winds up giving you the more favorable outcome after the system completes your calculations for everything you enter for your tax return. 

[Mike9241]

is this a business or a hobby?  if it's a hobby that withdrawal fee is a non-deductible hobby expense.

if it's a business the 1099 amount and withdrawal fee should have been reported on schedule C.

I consider this platform a parallel to Fantasy Sports which is also not gambling because the team doesn't actually exist.

from a TT article on Fantasy Sports

The IRS allows you to claim fantasy sports as a business if you can convince them it is not a hobby and that:

You engage in fantasy sports regularly, and
Treat it as a business activity with the intention of earning a profit
The IRS may consider an activity to be a business if it earns a profit at least two years out of every five.

https://turbotax.intuit.com/tax-tips/general/tax-considerations-for-fantasy-sports-fans/L75xYecdS