The law is the law – period, and chilul Hashem is chilul Hashem, – period. There’s no way to justify filing a return inaccurately because you don’t like the fact that there’s no US-Israel totalization agreement or how the PFIC rules work, and the chilul Hashem that will result when it’s found that Jews are coming up with reasons why the law does not apply to them is very significant.
I have a friend who is a US CPA who had to deal with a bunch of fraudulent claims of the child tax credit by Israel-resident US citizens – it got bad enough that just about anyone claiming the credit from Israel was flagged for audit, especially if the number of children seemed unrealistic to the IRS (tell them about families in Israel with 15+ children…). They don’t like the laws? As one commentator above said – renounce your US citizenship. Else, for work income, use a corporation (or an entity that elects to be treated as a corporation for US purposes), and for investment income, invest in either US mutual funds or Israeli funds that are not structured as corporations. I spoke with my CPA who explained this to me – it’s a bit of an inconvenience, and there could be some cost, but it does solve the issue.
an Israeli Yid