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Private Letter Ruling 201027041 released on July 9, 2010 interprets the U.S.-Russian Federation Income Tax Treaty (Treaty) Article 13 dealing with Independent Personal Services.

The ruling deals with an individual who is a resident of Russia but a citizen of another country, not the U.S. The individual is a partner in the Moscow office of a service partnership which performs services and has an base office in the United States. The individual in question, however, spends less than 183 days in a calendar year in the United States.

Under U.S. tax law partnerships are not taxed but the partners are deemed to carry on the partnership’s activities pro-rata. Thus, each partner is considered to conduct the business of the partnership as if he or she conducted such business individually. Absent the Treaty the individual in question would under U.S. tax law be deemed to personally conduct a trade or business in the United States and would be taxed on his or her pro-rata share of partnership income effectively connected with that trade or business.

Article 13 of the Treaty states in part:

1. Income derived by a individual who is a resident of a Contracting State from the performance of independent services shall be taxable on in that State, unless:

a. Such services are performed or were performed in the other Contracting State; and

b. The income is attributable to a fixed base which the individual has or had regularly available to him in that other State; and

c. Such individual is present or was present in that other State for a period or periods exceeding in the aggregate 183 days in the calendar year.

2. The term “independent personal services” includes in particular, independent scientific, literary, artistic, educational or teaching activities, as well as the independent services of physicians, lawyers, engineers, architects, dentists, and accountants.

Under U.S. tax law specific treaty provisions override general U.S. tax law rules.

The U.S. Treasury Department Technical Explanation to Article 13 of the Treaty makes clear that the above enumerated independent services covered by the Treaty is not exhaustive but includes all kinds of personal services performed by an individual for his own account where he or she receives the income and bears the risk of loss arising from performing the services.

The individual considered in the ruling clearly fits within Article 13, paragraph’s 1(a), 1(b) and (2) of the Treaty and would be subject to tax but for Article 13, paragraph 1(c). Since the individual is not present in the U.S. for more than 183 days in a calendar year as required by Article 13, paragraph 1(c), he or she is not subject to tax on the services performed through the partnership in the U.S.


Independent Contractors who are citizens or residents of The Russian Federation who perform services in the U.S, directly or through a partnership, and, who maintain an office in the U.S., directly or through such partnership, should keep track each year of the aggregate number of days spent in the U.S.

© 2010 by Robert S. Steinberg, Esquire, Miami Florida
Articles and consultations authored by attorney reflect the state of law as of the date of their writing. The laws change daily. Users of this site are advised to consult attorney regarding their situation.
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