No one is being prosecuted for online gambling, millions of americans are doing it. The WTO (world trade organization) is attempting to force the US to allow americans to gamble online at foreign based casinos.

The US federal and state governments are fumbling around not sure what they're doing at this point, and in the meantime, americans are going right ahead and gambling online all they want.

And, yes, winning online gamblers have to pay tax on their winnings, and no, the IRS isn't going to turn them in to some local officials for breaking any laws. The IRS doesn't know or care if online gambling is illegal in anyone's local area.