For example, the first list penalizes US companies who do business in North Korea by denying them foreign tax credits, but the second list fortunately allows American citizens living and working in North Korea to exclude up to ~$100,000 of their North Korean wages from being taxed by the United States.
|Albania was on the first list until 1991.|
The naughty countries are:
Iraq and Libya were most recently removed from the list in 2004. The list also once included Afghanistan, Albania, Angola, Cambodia, South Africa, Vietnam, and the former South Yemen.
(Though the list began in 1987, poor Albania was the only Warsaw Pact country to ever be on the list.)
The US tax on income earned in the first list's countries cannot be offset by foreign taxes paid to that country, nor by other foreign taxes paid to other countries not on the list. Furthermore, US persons are subject to US tax on their income from corporate subsidiaries operating in those countries, even though the income might be deferred under normal tax rules. The result is that the income from those countries is generally subject to US tax no matter what. Apple's tax-sheltering Irish subsidiary would not have worked as a North Korean subsidiary.
An entirely separate list of naughty countries is prescribed by Internal Revenue Code section 911(d)(8). US citizens and resident aliens who work in foreign countries are normally allowed to receive tax-free up to ~$100,000 of foreign wages and other earned income. But this "foreign earned income exclusion" is denied if the US person works in a country on the second list.
The second list of naughty countries is:
That is all.
Libya and Iraq were the only other countries on the second list, and they were removed from the second list in 2004.