@woodydog - You report $65 as gross revenue (income), because that's what you received. You didn't pay Groupon anything.
Now, had Groupon issued you a 1099 for $100 (but only sent you $65), then you could deduct the $35 as business expenses. But, you would have to report the $100 as income. Either way you only pay tax on $65.
To say it another way, you have simply agreed to sell your service for $65, rather than $200 or even $100. Discounts are not deductible, whether they come directly from you or go thru a third party, like Groupon
