Many Indian-Americans own part of a family business in India, such as a private limited company, a partnership firm, an LLP or a sole proprietorship. Others start one while living in the United States. The U.S. does not rely on what the business is called in India. It classifies the entity under its own rules and asks for information returns every year, even if no profit is paid out. The forms carry significant penalties, so it pays to know which ones apply.
Step one: how the U.S. classifies the entity
For most foreign entities that can choose their classification, the default rule on Form 8832 is that it is a partnership if it has two or more members and at least one has unlimited liability, an association taxable as a corporation if all members have limited liability, and disregarded if it has one owner without limited liability. Limited liability is judged under the law the entity is organized under. A public limited company in India is on a Treasury list of entities that are always corporations. The entity can usually change its default status by filing Form 8832 within the allowed time.
| Indian structure | Typical U.S. starting point | Forms often involved |
|---|---|---|
| Public or private limited company | Corporation | 5471, and sometimes 8621 |
| LLP | Corporation by default, unless it elects partnership | 5471, or 8865 if it elected |
| Partnership firm with unlimited-liability partners | Partnership | 8865 |
| Sole proprietorship | Not a separate entity; may be a foreign branch | 8858 |
| Family trust or HUF | Needs individual review | 3520, 3520-A, 8938 |
Your Indian CA can supply the deed, LLP agreement or articles that the classification depends on.
Form 5471: foreign corporations
The instructions describe filer categories, including a U.S. citizen or resident who is an officer or director of a foreign corporation after a U.S. person acquires 10% of it (Category 2), a U.S. person who acquires or disposes of a 10% stake (Category 3), a U.S. person with control, meaning more than 50% of the vote or value (Category 4), and a U.S. shareholder of a controlled foreign corporation, or CFC (Category 5). A CFC is a foreign corporation more than 50% owned by U.S. shareholders, who each own at least 10%.
Form 5471 is attached to your return and due when it is due, including extensions. The penalty is $10,000 per foreign corporation per year, with additional amounts of $10,000 per 30 days (up to $50,000) after 90 days from an IRS notice, plus a reduction of foreign tax credits. See Form 5471 penalties.
Income you may owe tax on without a dividend
A U.S. shareholder of a CFC may have to include certain income in the year it is earned, even if nothing is paid out. This covers Subpart F income and GILTI. A 2025 law renamed GILTI as net CFC tested income for tax years beginning after December 31, 2025. The Congressional Research Service summarizes the changes: the corporate deduction becomes a permanent 40%, the deemed-paid credit rises from 80% to 90%, the 10% return on tangible assets is no longer excluded, and some expense allocation rules change.
Those corporate benefits are designed for corporate shareholders. An individual generally gets the deduction and credit only by making a section 962 election to be taxed at corporate rates, which Publication 514 describes. Whether that helps depends on your facts and needs modelling.
Forms 8865 and 8858
Form 8865 covers foreign partnerships. Category 1 is a U.S. person who controls (more than 50%) the partnership. Category 2 is a 10% owner while U.S. persons who each own 10% or more control it. Category 3 is a contribution of property for a 10% interest or more than $100,000 in 12 months. Category 4 is a reportable event such as acquiring or dropping below a 10% interest. The penalty is $10,000 per partnership per year.
Form 8858 covers foreign disregarded entities and foreign branches, and a business you operate directly in India can fall into this group. It is due with your return, and the penalty is $10,000 for each annual period.
Other forms that can apply
- FBAR for company accounts you own through more than 50% control or sign for.
- Form 8938 for your interest in a foreign entity.
- Form 8621 if the company is passive, such as an investment holding company.
- Form 3520 and 3520-A for certain foreign trusts.
Indian company filings, FEMA and RBI rules on foreign investment, and the Indian tax return of the business are handled under Indian law with your Indian CA.
How we can help
We classify each entity under U.S. rules, prepare the information returns, model the CFC income and coordinate with your Indian CA on financial statements and exchange rates. See international tax services.
Frequently asked questions
Is an Indian LLP a partnership for U.S. tax?
Not necessarily. If all members have limited liability, the default is a corporation unless the LLP elects partnership treatment on Form 8832.
Do I file Form 5471 if the company has not made a profit?
Possibly. The filing duty depends on your ownership or role, not on profit.
Is a sole proprietorship in India reported anywhere besides Schedule C?
It may also require Form 8858 as a foreign branch, depending on the facts.
Does a stake below 10% require any form?
Often a smaller stake needs no entity form, but the shares can still be reportable on Form 8938 and may raise other rules.
Official sources
- IRS: Instructions for Form 5471
- IRS: Instructions for Form 8865
- IRS: Instructions for Form 8858
- IRS: Form 8832, entity classification election
- Congressional Research Service: Tax provisions in P.L. 119-21
This page is a plain-language summary. The official source controls if there is any difference.
General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.