Check6.
I must assume that you paid Italian taxes on that money. Those taxes are deducted from what you would owe to the IRS (That is what a tax treaty is, an agreement not to double tax you). As the Italian taxes were probably higher then the amount owed to the IRS, you ended up not having to pay anything to the IRS. So your statement is correct. I would also bet that your the US Corporation you worked for overseas had someone prepare your taxes so that is why you think you were exempt from paying US taxes.
trot,
Almost every country that has an income tax will tax you for the money you earn while working inside it's borders. The US is the exeption in that they will tax you for money you earn outside its borders.
All a tax treaty does is have the IRS agree to deduct the taxes that another country charged you from what you owe them on the amount that you earned in the other country.
If any of you have more than a philosophical interest in this thread, I would suggest that you contact a competent tax accountant.