4 weeks ago
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CME Group CEO Terry Duffy warned that US traders using perpetual futures could face unexpected tax liabilities if courts ultimately determine that the contracts are swaps rather than futures.
Duffy said the issue has received little public attention as CME continues its legal challenge against the Commodity Futures Trading Commission over its approval of perpetual futures in the US.
“There’s ambiguity right there, from a tax perspective, for all US participants now,” Duffy told CoinDesk.
The dispute centers on whether perpetual contracts legally qualify as futures or swaps.
Unlike traditional futures, perpetual contracts do not expire. Traders instead exchange recurring funding payments to keep the contract price close to the underlying asset.
Duffy argued that these payments meet the statutory definition of a swap because they involve payments exchanged between two parties.
The classification could significantly affect how gains and losses are taxed.
Regulated futures may qualify for Section 1256 treatment, under which 60% of gains are generally treated as long term and 40% as short term. Swaps are typically subject to ordinary tax treatment.
The Internal Revenue Service has not issued specific guidance on perpetual futures.
Duffy warned that traders reporting perpetual contracts as Section 1256 futures could face additional liabilities if courts or regulators later classify the products as swaps.
Legal experts said the issue remains unsettled.
Rustin Diehl, a tax attorney at Allegis Law, said perpetual futures structurally resemble swaps but economically function more like futures, creating a conflict between their legal form and practical use.
Jason Gottlieb, head of Morrison Cohen’s digital assets practice, said the statutory definition of swaps is broad enough to leave considerable room for interpretation.
The courts may now play a larger role following the Supreme Court’s 2024 Loper Bright ruling, which ended the Chevron doctrine and reduced judicial deference to federal agencies when statutes are ambiguous.
A federal judge may initially focus on whether the CFTC adequately considered public comments and explained its decision rather than immediately deciding how perpetual contracts should be classified.
Even if the litigation establishes whether the products are swaps or futures, separate IRS guidance may still be needed because the tax agency is not required to follow the CFTC’s classification.
Duffy said the lack of clarity creates particular risks for large institutions that use derivatives for trading and hedging.
“How would you like to be running a very large public company that trades a lot and hedges a lot, and all of a sudden you’re in the news for not paying proper taxes,” he said.
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