Final answer:
A taxpayer's note or promise to pay does not satisfy the 'actually paid' requirement under the cash basis method of accounting. For cash basis accounting, only actual receipt of cash or cash equivalents qualifies as having 'actually paid' or received funds. The issuance of a note or IOU is insufficient for recognizing revenue or expenses.
Step-by-step explanation:
When it comes to the cash basis method of accounting, revenues are reported on the income statement in the period in which cash is received from customers, and expenses are reported in the period in which cash is paid out. A taxpayer's note or promise to pay does not meet the 'actually paid' criterion under the cash basis accounting method.
For the cash basis method, the 'actually paid' requirement is strict, implying that expenses are not recognized until the money is physically paid out, and income is not recognized until it has actually been received in cash or cash equivalents.
In the context of tax accounting, a promise to pay, such as issuing a note, does not constitute payment. Therefore, a taxpayer's note or an IOU would not be considered as payment for the purposes of cash basis accounting. Actual cash or its equivalent must change hands to satisfy the 'actually paid' rule.
The IRS guidelines would typically require the receipt of cash or cash-equivalent before allowing an expense to be deducted or income to be declared under the cash basis method.