A gas station owner gave his customers free beer in lieu of S&H Green Stamps (coupons collected to get free stuff in the olden days). From October 1974 through the end of 1975 the taxpayer offered his service station customers S&H Green Stamps as a promotional item. Since many of his customers were oil field workers, it was suggested to taxpayer that he would get more business if he would give free beer to his customers rather than S&H Green Stamps. Thus, in January 1976, he discontinued giving S&H Green Stamps and began offering free beer to his customers as a promotional item.

The beer was purchased from various grocery and liquor stores. It was kept in an old Coca Cola vending machine the Taxpayer had purchased and from which he removed the coin mechanism. Free beer was offered to any customerwho traded with the taxpayers service station. Usually the customer would park his car in a gas stall, and while the vehicle was being filled with gasoline or serviced, the customer was offered and allowed to drink beer in the station. Customers normally had one or two beers. Approximately 95 percent of the beer was consumed by taxpayers customers, and the remaining 5 percent was consumed by his employees, who were permitted to drink beer after closing. Taxpayer was not a beer drinker. Taxpayers business increased after he began offering free beer to his customers.

Discuss the business tax deductions