Well there are actual realizations in the ETF and mutual fund context, and the market has simply decided that structure still works for the commingled investments of US taxpayers. PFIC taxation I concede is a head-scratcher, but it's somewhat orthogonal to the capital gains issue. The big take home is that the US wants tax on all of your income, and it doesn't want you hiding any of that offshore. I'm an expat who deals personally with the last issue, and again I agree it's quite frustrating, but that's not what punitive means. That's just the type of frustration that arises when one is required to synchronize one or more complex systems.