Which term best describes income generated from a partnership that is subject to special rules around taxation by the IRS?

The term that best describes income generated from a partnership that is subject to special rules around taxation by the IRS is Subpart F income. Subpart F income refers specifically to certain types of income earned by controlled foreign corporations (CFCs), which can include income from partnerships in certain scenarios.

This classification is crucial because Subpart F income can be subject to immediate taxation in the United States, regardless of whether the income is distributed to the shareholders. This aspect of Subpart F was created to prevent companies from deferring U.S. taxes by reinvesting profits in foreign operations. Partnerships, depending on their structure and the nature of the income generated, may fall into this category.

In contrast, ordinary income does not have these unique tax implications tied specifically to partnerships, nor does qualified dividend income. Capital gains also are treated distinctly in terms of taxation and do not carry the special rules associated with Subpart F income. Therefore, the classification of income as Subpart F income highlights the special tax considerations that apply to certain partnership-generated income, making it the correct choice.