The approval of perpetual futures contracts in the US may expose traders to unforeseen tax and regulatory risks if these products are ultimately deemed to be swaps rather than futures, according to CME Group Chairman and CEO Terry Duffy. In an interview with CoinDesk, Duffy pointed out that there is ambiguity from a tax perspective for all US participants due to the lack of clarity on whether perpetual futures should be treated as swaps or futures. The issue stems from the periodic funding payments exchanged between long and short positions in perpetual contracts, which Duffy argues satisfies the statutory definition of a swap under US law. If perpetual contracts are classified as swaps, they will be taxed under ordinary taxation, rather than the blended tax treatment available under Section 1256 of the US tax code.
However, the IRS has not issued guidance on the tax treatment of perpetual futures, leaving market participants uncertain about how to report their positions. Legal experts say the issue is complex, with the definition of swaps being extremely broad, and the outcome will depend on how the court interprets the statute.
The process is likely to be lengthy, with potential litigation and a need for separate guidance from the IRS.