Taxing Lessons Case Summaries

Case — US-Philippines Tax Treaty

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Are a teacher’s wages exempt from income tax under the US-Philippines Tax Treaty?


Taxpayer Says: Income earned during a stay in the US qualifies for an exemption from tax under the treaty because the she did not intend to stay in the US longer than two years.

Internal Revenue Service Says: The exemption does not apply because the period of the visit was expected to exceed two years.


From NW Life Assurance Co. of Canada v. Commissioner, 107 T.C. 363, 378-379 (1996): The interpretation of treaty provisions must begin with the language of the treaty.

From Estate of Silver v. Commissioner, 120 T.C. 430, 434 (2003): The role of the judiciary in interpreting treaty provisions is to decide their underlying intent or purpose.

From the Convention With Respect to Taxes on Income, U.S.-Phil., art. 21, Oct. 1, 1976, 34 U.S.T. 1277: (1) Where a resident of one of the Contracting States is invited by the Government of the other Contracting State, a political subdivision or local authority thereof, or by a university or other recognized educational institution in that other Contracting State to come to that other Contracting State for a period not expected to exceed 2 years for the purpose of teaching or engaging in research, or both, at a university or other recognized educational institution and such resident comes to that other Contracting State primarily for such purpose, his income from personal services for teaching or research at such university or educational institution shall be exempt from tax by that other Contracting State for a period not exceeding 2 years from the date of his arrival in that other Contracting State.

From Treasury Department Technical Explanation of the Convention Between the United States and the Philippines, 1984-2 C.B. 412, 424):  If the period of the visit is expected to exceed two years then the exemption does not apply to any of the income earned.


If you are a resident of a foreign country, certain income you receive from sources inside the US may qualify for reduced tax rates or exemption from taxation under a tax treaty. The treaties, which also apply to US citizens or residents who receive income from certain foreign sources, help prevent double taxation on income.

In this case, the taxpayer, a citizen of the Philippines, came to the US in 2002 to teach at a California school. She signed a three year teaching contract as well as a separate contract with a company to sponsor her teaching visa for three years, and taught at the school until June 2006. She says the contracts were not available for a period of less than three years and that she had to sign them to get the work. During the time period in question, she signed yearly apartment leases in the US and purchased a home in the Philippines. Because she did not intend to say in the US more than two years, she believes the income for those two years should qualify for exemption under the tax treaty.

The IRS says the treaty and the Treasury Department’s Technical Explanation specify that the taxpayer must establish that she agreed to teach in the US for a period not expected to exceed two years. Because she signed three year contracts, that condition is not met. The income is taxable.


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HL Carpenter, an experienced investor and a CPA, specializes in reader friendly articles on taxes and investing for individuals and small businesses, and publishes two newsletters: Taxing Lessons and Top Drawer Ink. Visit and

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Sorry, wrong answer :(
Right answer!
For the IRS. The contracts indicate the taxpayer’s stay in the US was expected to extend for more than two years. Taxpayer is not entitled to the benefit under article 21 (of the treaty).