The approval of perpetual futures contracts in the US may expose traders to unforeseen tax and regulatory uncertainty, as the classification of these contracts as either swaps or futures remains unresolved. CME Group Chairman and CEO Terry Duffy warns of a looming tax risk, citing the ambiguity surrounding the tax treatment of perpetual futures.
The issue stems from the periodic funding payments exchanged between long and short positions in these contracts, which Duffy argues satisfies the statutory definition of a swap under US law. If perpetual contracts are ultimately deemed swaps, they would be subject to ordinary taxation, rather than the blended tax treatment available for futures under Section 1256 of the US tax code.
This could lead to uncertainty for market participants who have been treating these contracts as futures for tax purposes. Legal experts note that 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 Supreme Court's 2024 Loper Bright decision has eliminated the Chevron doctrine, giving federal courts less deference to agencies' interpretations of ambiguous statutes.
As a result, the classification of perpetual futures and their tax treatment may be subject to litigation and separate guidance from the IRS.