CME CEO Flags IRS Risk in US Perpetual Futures Classification Dispute

Crypto Regulation News

A legal fight over how perpetual futures contracts should be classified in the United States carries a tax risk that has received almost no public attention, CME Group Chairman and CEO Terry Duffy said on July 30. Duffy made the comments in an interview with CoinDesk while CME's lawsuit against the Commodity Futures Trading Commission (CFTC) remains pending in federal court.

The dispute centers on a structural feature of perpetual contracts. Unlike standard futures, perpetual contracts have no expiry date. Traders instead exchange periodic funding payments to keep the contract's price aligned with the underlying asset. Duffy argued those recurring payment exchanges satisfy the legal definition of a swap under US law, regardless of how the CFTC has classified the products.

The distinction carries direct financial consequences for traders. Contracts treated as futures may qualify for the blended tax rate under Section 1256 of the US tax code, which splits treatment 60% long-term capital gains and 40% short-term. Contracts classified as swaps, however, fall under ordinary income tax rates. The Internal Revenue Service (IRS) has not published guidance specifically addressing how perpetual futures should be taxed.

“Substance Over Form” Divides Legal Opinion

Rustin Diehl, a tax attorney at Allegis Law and professor of business law at Weber State University, said perpetual contracts look structurally like swaps on paper but perform economically like futures in practice. He described it as a substance-over-form problem, where the written structure of the instrument and its real-world function point in different directions.

Jason Gottlieb, partner and chair of Morrison Cohen's digital assets practice, said the statutory definition of swaps is broad enough to cover a wide range of financial products. He added that the breadth of that language leaves significant room for interpretation when courts apply it to newer instruments like perpetual futures. Both experts agreed that a definitive answer is unlikely to come quickly.

Courts now have more room to reach their own conclusions on classification questions. The US Supreme Court's 2024 Loper Bright ruling eliminated the Chevron doctrine, which had previously required federal judges to defer to agency interpretations of ambiguous statutes. Judges can now read derivatives law independently, which could produce outcomes that diverge from the CFTC's position on perpetual futures.

Related Article: CFTC Clears Bitcoin Perpetual Futures for US Markets

IRS Not Bound by CFTC Definitions

Duffy said large public companies that hedge using perpetual futures and have been filing under Section 1256 treatment could face scrutiny if a court rules those positions should have been reported as swaps. "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," he said.

Diehl said a federal judge will likely examine CFTC procedure first before ruling on the classification itself. The court is expected to assess whether the regulator adequately considered public comments and clearly explained its reasoning when it approved perpetual futures. That procedural review could push back a definitive classification ruling by a meaningful amount of time.

Even after courts rule, the tax question may remain open. The IRS is not required to adopt the CFTC's definitions and could reach its own conclusion independently. Diehl said traders may need to seek direct IRS guidance on how to report their positions. Gottlieb said extended litigation across multiple courts is probable given the level of statutory ambiguity involved.