The approval of perpetual futures contracts in the US may expose traders to unforeseen tax and regulatory uncertainty, as the products' classification as swaps or futures remains ambiguous, according to CME Group Chairman and CEO Terry Duffy. In an interview with CoinDesk, Duffy stated, 'There's a consequence that nobody's talking about. There's ambiguity right there, from a tax perspective, for all US participants now.' The ambiguity stems from the periodic funding payments exchanged between long and short positions in perpetual contracts, which Duffy argues should be classified as swaps under US law.
If perpetual contracts are deemed swaps, they would 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 these positions.
Legal experts, such as Rustin Diehl and Jason Gottlieb, note that the issue is complex and the definition of swaps is broad, leaving room for interpretation. The outcome of the court decision could significantly influence how the US approaches perpetual futures, with potential litigation and uncertainty for large institutions that trade these contracts.