CoinDesk
CME Group Chairman and CEO Terry Duffy is flagging a tax time bomb buried inside the U.S. approval of perpetual futures, warning that traders who have been filing these contracts under the favorable Section 1256 blended-rate regime could face a retroactive bill from the IRS if a court ultimately reclassifies the products as swaps rather than futures.
The dispute runs alongside CME's ongoing legal challenge against the Commodity Futures Trading Commission over the regulator's decision to greenlight perpetual futures in the United States. Both sides are awaiting a federal court ruling on whether the contracts should be legally treated as futures, the CFTC's current categorization, or as swaps, which is Duffley's argument. Duffles contends that the periodic funding payments exchanged between long and short positions satisfy the statutory definition of a swap under U.S. law.
Why it matters
Section 1256 lets institutional traders treat gains and losses as 60% long-term and 40% short-term capital, a structure that produces a meaningfully lower blended tax rate than ordinary income treatment. If perps are reclassified as swaps, that regime disappears. The IRS has not issued guidance specifically addressing perpetual futures, which means traders are flying blind on a position that could be hundreds of millions of dollars in notional exposure at major funds. "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," Duffy said.
The legal backdrop makes a quick resolution unlikely. The Supreme Court's 2024 Loper Bright decision stripped federal courts of the Chevron deference that once let agencies win statutory interpretation fights on a tie, meaning judges now read ambiguous statutes themselves. Tax attorney Rustin Diehl of Allegis Law called it a substance-over-form question. Morrison Cohen partner Jason Gottlieb noted the statutory definition of swaps is so broad it could encompass nearly anything, suggesting the answer depends on which judge reads the statute first.
Market impact
For now the practical read is restraint, not retreat.
Frequently asked questions
-
What is the tax risk Duffy is flagging on U.S. perpetual futures?
Traders have been filing perps under Section 1256's 60% long-term / 40% short-term blended capital gains regime. If a court reclassifies perps as swaps, that favorable treatment disappears and gains get taxed as ordinary income, potentially retroactively.
-
Why does Duffy think perps are swaps instead of futures?
Perps never expire and instead rely on periodic funding payments between longs and shorts to keep price near the underlying. Duffy argues that recurring payment exchange meets the statutory definition of a swap under U.S. law, regardless of the CFTC's current classification.
-
What is the CMECFTC lawsuit about?
CME is challenging the CFTC's approval of perpetual futures contracts in the United States. The case sits at a federal court awaiting a decision on whether the regulator's approval can stand and how perps should be legally classified.
-
How does the Loper Bright decision affect this fight?
The 2024 Supreme Court ruling eliminated Chevron deference, so federal courts no longer rubber-stamp agency interpretations of ambiguous statutes. Judges now read the law themselves, which gives the court more power to override the CFTC's classification of perps.
-
Has the IRS issued guidance on perpetual futures taxation?
No. The IRS has not addressed perps specifically, and tax attorneys note the agency is not obligated to adopt the CFTC's interpretation of a financial product. Until guidance drops, institutional traders are filing without a clean answer.
CoinTelegraph
TheBlock
WatcherGuru
WuBlockchain
CryptoSlate