The remodeled Bethesda colonial was in good condition in 2011 when the owners decided to work with Second Chance.

The Manns claimed a charitable donation of materials worth $675,000 to the Baltimore nonprofit, part of an overall $709,204 in Second Chance-related write-offs they sought that year.

The Internal Revenue Service wasn’t pleased.

Recent court filings reveal a long-running fight between the IRS and one of the region’s best-known nonprofits, which has a South Baltimore store that sells secondhand furniture and building supplies salvaged from donors’ homes.

More than 50 Second Chance donors have been audited over the years for overvaluing write-offs, sometimes resulting in settlements.

The federal tax authority fined the nonprofit, its CEO Mark Foster and an appraisal firm last year. In May, Second Chance contested the fines in a federal complaint, arguing that the IRS is on an unfair “crusade” dating back more than a decade. And this month, the appraisal firm that works with Second Chance and its donors filed its own lawsuit.

Green Donations Consultants of Fredericksburg, Virginia, claims that tax authorities have mounted a “scorched earth assault on all taxpayers” who use its appraisal services when donating to Second Chance.

The Manns faced a decade of audits, interest payments, penalties and a legal battle that court records show eventually concluded in the federal tax authority’s favor in 2021.

Lawrence Mann declined to comment.

At the center of that case — and the more recent ones — is the question of how to properly calculate what property owners may claim as tax deductions when they donate to Second Chance.

Write-offs are an important incentive in the model that Second Chance has used to attract donors for more than 20 years.

The nonprofit hires people facing barriers to employment, such as a recent incarceration, to “deconstruct” homes on the East Coast. The nonprofit tells property owners that they can claim a tax deduction if they seek an independent, third-party appraisal of donated items and pledge a percentage of the refunded amount to Second Chance. The salvaged materials are then resold out of the nonprofit’s sprawling warehouse in South Baltimore.

Some Second Chance workers have raised questions about the organization’s financial ties to Foster, who lives in a sprawling home that he sold to the nonprofit after fixing it up using donated materials. Others who performed work for Second Chance, including at Foster’s residence, have accused the nonprofit of wage theft.

According to the IRS, Foster met with tax authorities in Annapolis around 2010 or 2011 to discuss how much of a home donation could be deducted as a charitable contribution to Second Chance.

During the meeting, Foster said he believed the value of an entire structure could be deducted because it was being used in the nonprofit’s training program for workers.

But the IRS says the deconstruction process results in some materials being damaged or destroyed, and instructed that claims should be limited to the resale value of items that cross the threshold of Second Chance’s warehouse.

Foster, according to an IRS account of the meeting, said that using that methodology would reduce the size of tax deductions by 40% — and, subsequently, the cash pledges coming into Second Chance.

The Manns based their $709,204 write-off claim on a Green Donations Consultants appraisal that treated their intact home as a charitable contribution. Appraisal documents asserted that the situation was “similar to donating a structure to the local fire department for use in a fire training exercise.”

The IRS disagreed — and prevailed in federal court. The Manns paid $194,102 in back taxes and interest.

But despite the outcome of that case, versions of its central question have entangled other property owners who engaged with Second Chance, court records show.

The IRS audited 22 donors who had claimed deductions for the 2020 tax year. The investigation led the agency to penalize the nonprofit, as well as Foster and Patrick Smith Sr., the president of Green Donations Consultants.

Investigators said the Fredericksburg company performed appraisals for more than 95% of Second Chance clients.

Authorities cited the 2011 Mann case as evidence that Foster and Smith knew in later years that the way Green Donations Consultants conducts appraisals would lead donors to understate their tax liability, and the two failed to change their practices.

Barry Coburn, an attorney based in Washington, is representing the appraisal firm and declined a request for comment.

IRS representatives did not respond to a request for comment.

Foster said in an email that support for the nonprofit has not wavered, despite the investigations.

The lawsuits could take years to settle.

In the meantime, filings in the cases are revealing pages of communications that show the extent of the IRS scrutiny of Second Chance and its donors. What emerges could challenge the nonprofit’s reputation in the region as a positive force for property owners, workers and the environment.

According to the IRS, Smith incorrectly told Second Chance clients that they could claim donations even if deconstruction would not occur until the following tax year. He also allegedly failed to adjust appraisals to reflect when items were damaged during the deconstruction process.

Second Chance said it doesn’t keep track of the salvaged items’ conditions, and Smith was unable to produce photo documentation except those taken prior to deconstruction, according to court filings. The IRS also claimed Foster copied “word for word” the appraisals that Smith generated prior to deconstruction and marked “All Materials Received.”

Around 2016, a federal tax investigator recommended that the government revoke Second Chance’s tax-exempt status, which Foster successfully appealed, the documents show.

They also show the founder claimed he was wrongly targeted in a criminal investigation that was “quickly closed.” He later filed an inspector general’s complaint.

All of the scrutiny has been bad for business, Green Donations Consultants said in court records, noting that about 44% of the company’s clients come from Second Chance.

“Clients do not want to hire an appraiser who, rightly or wrongly, directly or indirectly, seems to have found itself in the IRS’s audit crosshairs,” the company wrote.

At least one of the audited donors was Foster himself.

Court filings show the founder and his wife, Mary Blake Foster, were personally audited for tax years 2008 through 2012, as well as 2014, the year that the couple hired Second Chance to deconstruct their personal property in Baltimore County — which they bought for $375,000 and promoted as the Second Chance “Concept House.”

A few years later, the Fosters sold the home for $1.5 million to the nonprofit — a transaction that raised questions from some staff. The Fosters said they didn’t profit from the sale. They continue to live there, but have declined to describe the terms of their arrangement with Second Chance.

The Concept House appeared in another federal lawsuit filed in September by Second Chance workers, who claim they were wrongly denied wages because they were classified as independent contractors rather than as employees. Under Foster’s supervision, the workers said they provided gardening, landscaping and other services at the house, the complaint states.

Second Chance’s battles in court haven’t slowed the nonprofit’s plans to expand in South Baltimore, where Foster said he hopes to open a second store.

Early last year, the nonprofit sold a portion of its Ridgely Street campus in South Baltimore for $15.5 million and later used about $4.5 million in proceeds to acquire a building at 1025 W. Ostend St. and a lot at 1300 W. Hamburg St.

Foster also told the Baltimore Business Journal this summer that he intends to open a hub for the nonprofit’s teaching and job training programs. Maryland property records show the nonprofit in June bought a building at 1303 Carroll St. in Pigtown for $750,000.

Second Chance expects to add 60 to 80 new positions over the next year, Foster said recently.

“We remain busier than ever and support of our service to the community has not wavered,” he said.