Key Takeaways:
The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) was signed into law on July 18, 2025. It establishes the first comprehensive U.S. regulatory framework for stablecoins, requiring 1:1 backing, transparency, and compliance measures. Combined with the OBBBA repeal of Section 174 amortization (restoring immediate expensing for domestic R&D costs effective for tax years after December 31, 2024), it creates powerful incentives for blockchain innovation. U.S.-based companies developing qualifying blockchain technologies can now claim enhanced R&D tax credits while benefiting from regulatory clarity.
- Core Provisions of the GENIUS Act
Stablecoin issuers must maintain 1:1 reserves in U.S. dollars or Treasuries, provide monthly disclosures, and comply with anti-money laundering rules. The act recognizes stablecoins as strategic technology without full banking regulation. - Impact on Blockchain R&D Tax Credits
Activities addressing technological uncertainties (e.g., scalability, interoperability, security) in blockchain, DeFi, Web3, and stablecoin protocols align with IRS Section 41 definitions. This enables federal credits approximating 6-10% of qualified expenses, plus state incentives. - Eligible Entities and Activities
Qualifying companies include stablecoin issuers, exchanges, fintechs, banks, infrastructure providers, DeFi builders, and enterprises. Examples: smart contract development, zero-knowledge proofs, cross-chain bridges, and fraud detection systems. Activities must pass the IRS four-part test (hard sciences, uncertainty, experimentation, business purpose). - What Typically Does Not Qualify
Routine debugging, maintenance, non-experimental coding, UI design without technical complexity, or marketing/operational tasks. Offshore R&D remains subject to 15-year amortization. - Maximizing Benefits Post-Section 174 Repeal
Domestic expenses qualify for immediate expensing, improving cash flow. Startups can offset up to $500,000 in payroll taxes annually even if unprofitable. Strategic use of the Section 280C election can optimize after-tax benefits.
This framework encourages onshoring blockchain development and strengthens claim defensibility amid IRS scrutiny. Proactive documentation is essential. Read on for qualification details, examples, FAQs, and filing strategies.
Introduction
- 1:1 backing with U.S. dollars or Treasury securities
- Monthly reserve disclosures for transparency
- Issuance limited to regulated banks or approved nonbank entities
Enacted with bipartisan support (House vote: 308–122), the Act aims to enhance financial stability, increase transparency, and strengthen the U.S. dollar’s role in global finance (White House Fact Sheet).
For blockchain companies, the GENIUS Act represents a shift from regulatory uncertainty to a more supportive environment for innovation.
When paired with the repeal of Section 174 amortization under the One Big Beautiful Bill Act (OBBBA), effective for tax years beginning after December 31, 2024, this creates new opportunities for R&D tax credits, provided activities qualify. The repeal allows immediate expensing of domestic research and experimental (R&E) expenditures, reversing the prior five-year amortization rule.
⚠️ Important: Only U.S.-based R&D qualifies for immediate expensing. Offshore development remains subject to 15-year amortization.
Key Provisions of the GENIUS Act and Their Impact on Blockchain R&D
The Act subjects stablecoin issuers to the Bank Secrecy Act, ensuring anti-money laundering compliance and consumer protections. It prohibits interest payouts on stablecoins and emphasizes yield capture for issuers, creating bank-like oversight without full banking regulation.
For blockchain innovation, this framework means stablecoins can serve as reliable tools for:
- DeFi protocols
- Cross-chain payments
- Tokenized assets
The GENIUS Act’s recognition of stablecoins as a strategic technology aligns with IRS definitions of R&D. Companies developing blockchain software or designing crypto/Web3-based applications can claim credits for activities that address technological uncertainty, such as scalability, interoperability, and security, if they meet IRS standards.
How to Qualify for GENIUS Act Blockchain R&D Tax Credits — Eligible Entities and Activities
To qualify, blockchain companies must meet the IRS four-part test: reliance on hard sciences, technological uncertainty, process of experimentation, and a permitted business purpose.
Here’s how different entities may benefit:
- Stablecoin Issuers: Smart contract development, reserve automation, compliance enhancements.
- Exchanges & Custodians: Stablecoin integrations, custody protocols, zero-knowledge proof security.
- Fintechs & Payment Platforms: Cross-border APIs, fraud detection systems.
- Banks & Financial Institutions: Tokenized deposits, blockchain-fiat settlement pilots.
- Blockchain Infrastructure Providers: Developer tools, middleware, cross-chain bridges.
- DeFi & Web3 Builders: Protocol design, wallets, lending algorithms, privacy tech.
- Enterprises & Corporates: Treasury pilots, B2B settlements with tokenized assets.
⚠️ Important: Startups developing blockchain or Web3 applications may use the R&D credit to offset up to $500,000 in payroll taxes annually, even if they are not yet profitable, provided they meet IRS eligibility requirements.
What Qualifies as R&D in Blockchain
- Technical work addressing uncertainties (e.g., smart contract stress-testing, scalability experiments)
- Prototyping and iterative development (including failed tests)
What Doesn’t Qualify as R&D in Blockchain
- Routine debugging, maintenance, or non-experimental coding
- UI design without technical complexity
- Marketing or operational activities
Calculating and Maximizing R&D Tax Credits Post-Section 174 Repeal
The OBBBA repeal restores immediate expensing for domestic R&E, making credits more valuable.
For example, on a $1 million qualified spend (60% salaries, 20% cloud), federal R&D credits could approximate $200,000, plus additional state-level credits. Typical federal credits range from 6–10% of qualified expenses, often higher with state incentives.
Conclusion: Leveraging GENIUS Act for Blockchain Tax Incentives
The GENIUS Act and Section 174 repeal position the U.S. as one of the most favorable jurisdictions globally for blockchain R&D. Together, they provide regulatory certainty and financial incentives for innovators.
If you or your clients are developing blockchain software or designing crypto/Web3-based applications, now is the time to ensure you are capturing all eligible credits.
Strike Tax Advisory specializes in helping blockchain builders and fintech innovators turn past development into future savings. Let’s connect to explore your eligibility.
