CME CEO Says US Perpetual Futures Could Face Tax Risk

Terry Duffy, chairman and chief executive officer of CME Group, said cryptocurrency perpetual futures in the US could face tax uncertainty.

In an interview with CoinDesk published on July 30, Duffy said there is tax ambiguity for participants in the US perpetual futures market.

At issue is whether perpetual futures should be treated legally as futures or swaps. Traditional futures contracts have expiration dates, while perpetual futures do not. Instead, holders make periodic funding payments to keep contract prices close to the underlying asset.

Duffy said that structure is closer to a swap under US law because it involves periodic payments between counterparties. "If two parties are exchanging payments with each other, that is considered a swap," he said.

The tax treatment would differ sharply depending on that classification. If perpetual futures are treated as futures, 60% of gains and losses would be taxed at the long-term capital gains rate under US tax law, while the remaining 40% would be taxed at the short-term capital gains rate. If they are classified as swaps, they could instead be subject to ordinary income tax treatment.

The Internal Revenue Service has yet to issue specific guidance on perpetual futures. Duffy said investors may file taxes on perpetual futures as if they were futures, but the key question is how the IRS would respond if a later ruling determines those products should be taxed as ordinary income, including whether unpaid taxes would be assessed.

Duffy added that institutions trading perpetual futures on a large scale will face significant tax uncertainty for now. "What large corporation wants to suddenly appear in reports saying it didn't properly pay its taxes?" he said.