The GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act) was signed into law on July 18, 2025, by President Donald J. Trump. This landmark legislation provides the first comprehensive U.S. regulatory framework for stablecoins, requiring:
- 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.
Frequently Asked Questions (FAQ)
What is the GENIUS Act and how does it affect R&D tax credits?
It regulates stablecoins, giving clarity that strengthens blockchain R&D claims. Combined with Section 174 repeal, companies can expense domestic costs immediately.
How does Section 174 repeal impact blockchain R&D?
It allows full deduction of domestic R&E costs in the same year, improving cash flow for Web3 development.
Can startups benefit even if unprofitable?
Yes. Pre-revenue firms can offset up to $500,000 in payroll taxes annually.
What expenses qualify?
Developer salaries, contractors, cloud hosting, security audits, prototypes. Not qualifying: marketing, routine ops, or non-experimental work.
Does the GENIUS Act encourage blockchain builders to return to the U.S.?
Yes, by reducing regulatory uncertainty and aligning with tax incentives, the Act supports onshoring of blockchain R&D.
Can retroactive claims be made?
Yes, if linked to U.S. business components and within open tax years (typically 3 years). Foreign costs remain subject to amortization.
Is IRS scrutiny higher for crypto R&D claims?
Historically yes, but with GENIUS Act legitimacy, claims are easier to defend. Documentation remains critical.
How do client engagements in Web3 development qualify?
Both service providers and clients can apportion R&D claims for qualifying experimental activities.
Can offshore R&D qualify?
Only domestic R&D qualifies for immediate expensing. Offshore development amortizes over 15 years.
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.
