CME Group Chairman and CEO Terry Duffy stated that if the US officially approves crypto perpetual contracts, the market may face a tax issue that has not been fully discussed: if these products are classified as swaps rather than futures in the future, traders' previous tax filing methods may be affected.
The controversy centers on the product's characterization.
This dispute has now entered legal proceedings. CME is challenging the U.S. Commodity Futures Trading Commission's (CFTC) approval of perpetual contracts, and both sides are awaiting a federal court ruling. The outcome will not only determine whether such products can be further promoted in the United States, but will also influence how regulators will handle crypto derivatives in the future.
Duffy argues that perpetual contracts are closer to the definition of a "swap" under US law than the "futures" term currently used by the CFTC. This is because perpetual contracts have no expiration date, and the long and short sides periodically exchange funding rates to keep the contract price close to the underlying asset price. According to him, this continuous exchange of payments inherently possesses the characteristics of a swap.
Tax treatment may lead to disagreements
If perpetual contracts are treated as futures, some institutional traders may be subject to tax treatment under Section 1256 of the U.S. tax code, with related profits and losses typically calculated as 60% of long-term capital gains and 40% of short-term capital gains.
However, if such products are ultimately classified as swaps, the tax treatment may shift to ordinary income. Because perpetual contracts are relatively new financial products, the IRS has not yet provided specific guidance on their tax classification.
This means that if market participants initially report as futures contracts, but later the courts or regulators switch their reporting to swaps, their tax records may face pressure to be reinterpreted. Duffy stated that this is particularly sensitive for large institutions with frequent trading and high hedging needs.
Legal experts say the issue will not be resolved quickly.
However, several legal professionals told CoinDesk that this issue cannot be simply concluded. Tax lawyer Rustin Diehl pointed out that from a product structure perspective, perpetual contracts do resemble swaps; but from an economic function perspective, they are similar to futures. The key lies in whether the court places more emphasis on the legal text or on the actual function.
Jason Gottlieb, a partner at Morrison Cohen, also stated that the definition of "swap" under U.S. law is very broad, and new financial products often leave considerable room for interpretation. With the U.S. Supreme Court's decision in the 2024 Loper Bright case to diminish the traditional respect for regulatory interpretations, federal judges will have even greater discretion in dealing with such ambiguous provisions in the future.
Diehl also mentioned that judges may not initially determine whether perpetual contracts are futures or swaps, but are more likely to first examine whether the CFTC fully considered public opinion and provided complete reasons when approving the product.
Even if the litigation ultimately clarifies the regulatory classification, tax issues may not be resolved simultaneously. Legal experts point out that the IRS is not obligated to fully adopt the CFTC's classification of financial instruments; therefore, the final tax reporting standard for perpetual contracts may still require a separate statement from the tax authorities.
