The City of Detroit is cracking down on those who owe back income taxes by launching an aggressive litigation effort targeting thousands of tax evaders living or working at 33 properties in the downtown and Midtown areas.

Detroit corporation counsel Melvin Butch Hollowell told the Free Press on Wednesday that the city identified at least 7,000 people at the 33 properties — such as the Penobscot Building, Cadillac Square Apartments and Broderick Tower — as potential tax evaders, and more could be on the way.

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The city has filed lawsuits against at least four entities, seeking personal records including addresses and Social Security numbers of the residents — and in one case, employees — of the property. Hollowell would not identify all of the buildings being targeted.

On average, 14.79% filed city tax returns for 2014 at the 33 properties, which was the tax year the city's legal team identified as a test group of a larger planned enforcement effort. The properties are both residential and commercial buildings.

The City of Detroit's income tax rate for residents is 2.4%. Non-residents who work in the city are required to pay a rate of 1.2%. Business income has a 2% taxable rate.

At four of the properties, not a single person filed income tax returns in 2014, and the highest percentage of people to file taxes at a single property was 42%.

The city has already begun to reap benefits from its litigation efforts: Last year, the city recovered $5.3 million in back-owed income taxes, but officials declined to say how much money the city has lost due to tax evasion or identify all 33 properties. The $5.3 million does not include cases currently pending.

Hollowell told the Free Press the city sent out 7,000 mailings to individuals who they believe should have filed taxes for the 2014 tax year but didn't. On average, each person owed a minimum of $350. Ten percent of the 7,000 people contacted responded to the city.

Just last week, Hollowell said, one residential filing uncovered $122,000 owed in back taxes. In another instance, the city reached an agreement with one person who agreed to pay $400,000 in back taxes.

“It is more common than it should be," Hollowell said. “We are beginning vigorous enforcement of this. ...There is not nearly the level of compliance with filing city income taxes as there should be. When you don’t file, it's not fair to everybody else. It is not OK today and it never was OK as far as the law was concerned. But now the city has dedicated resources to make sure people pay their fair share."

City officials are hoping to draft an ordinance to go before city council within the next month, Hollowell said, that would make it easier to go after tax evaders without costly litigation.

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Currently, tax evaders can face up to a $500 fine or 90 days in jail.

In the lawsuit filed May 3 against the New Cadillac Square Apartments owner, New Cadillac Square, the city said it believes "many residents" who reside in the city use a suburban address of a relative or friend, "for purposes of obtaining lower auto insurance rates and/or the purpose of avoiding city income tax liability." Detroit has some of the highest insurance rates in the country.

The high-rise is located near Campus Martius.

Hollowell said the city filed its first lawsuit in 2016 against the Broderick Tower owners, Motown Construction and Motown Construction Partnership, on Nov. 30. Broderick Tower, where some monthly rents exceed $4,000, is at 10 Witherell in downtown Detroit near Comerica Park.

In the complaint, the city asked the court to order the owners to fork over all tenant applications for 2014 and 2015, names, addresses, Social Security numbers, employer information and the date and length of employment.

Attorneys for Broderick's owner called the request "unconstitutional" and "overboard."

"The statutory scheme the City of Detroit relies upon to justify the disclosure of this information is unconstitutional," the attorneys wrote in their response to the lawsuit. "...The city's inquiry amounts to an impermissible fishing expedition which, if permitted, would essentially create an annual audit for Detroit's apartment building owners."

The city filed for Chapter 9 bankruptcy in 2013 — the largest in municipal history. Judge Steven Rhodes confirmed the city's plan of adjustment on Nov. 7, 2014, allowing it to exit bankruptcy. One stipulation requires the city to file at least three consecutive balanced budgets. Tax evasion could impact the effort, according to city officials.

"Once we filed three consecutive budgets, we will be out from state oversight and that’s critical for us," Hollowell said.

Hollowell said he created a unit within his legal team devoted just to this effort. He hired Robert Forrest, who has extensive experience in litigating civil and criminal tax matters, to help head the team. Forrest, according to Hollowell, previously served as a trial attorney for the tax division at the Department of Justice in Washington, D.C., for several years.

The new team is composed of three attorneys and 11 auditors.

"We brought him on board as just a corporation counsel in order to address what we believe is a dramatic under-filing of residents," Hollowell said.

Forrest will litigate the cases in the Michigan Tax Tribunal or before Wayne County Circuit Chief Judge Robert Colombo, who has agreed to establish a dedicated docket just for the city's tax cases.

The first case Colombo presided over was the Broderick Tower owners.

According to the city, 27% of the Broderick apartment residents filed a city return for 2014. The non-compliance continued into 2015, but improved with 34% of residents filing a city return.

The city said in court filings that it undertook "extraordinary efforts to secure voluntary compliance" by sending correspondence to each apartment unit, telling them they owed taxes.

The Broderick Tower owners, who were represented by attorneys Jeffrey Sangster and Tyler Phillips, initially pushed back on the lawsuit and refused to provide the records, according to court documents.

The case went before Colombo, who in February ordered Broderick's owners to produce the documents to the city.

Phillips told the Free Press on Tuesday that he was not authorized to comment on the case, but said they would not be appealing Colombo's ruling.

Hollowell said the owners have since turned over the information the city requested.

"So far, it's been very successful," Hollowell, said of the litigation.

In the case against Cadillac Square, which was filed May 3, almost 80% of the residents in the entire 221 unit building did not file tax returns for 2014. That number slightly decreased to 71% for the 2015 tax year.

According to the lawsuit, the city sent the owner notice in mid-2015 that it would be requesting the data, but a representative refused to comply on July 25, 2015.

The city again requested the information on March 17 of this year in a letter to George Pecchia, the registered agent and stockholder of the company. Pecchia, according to the court documents responded, and requested additional information, but failed to produce the documents by the April 16 deadline.

However, Hollowell said, a consent agreement was recently reached with the company. Owners of the Cadillac Square Apartments did not return calls and e-mails requesting a comment.

The case filed against Triple Properties Detroit, the owner of the Penobscot Building, on Monday, differs slightly from the other two: The city is seeking information for not only tenants, but potentially workers within the building. The 47-story Penobscot Building is in the heart of downtown, between Fort and Congress streets. It is home to a number of retailers, law firms, private businesses and the Wayne County Friend of the Court.

"(Pursuing litigation against workers) that’s determined on a case-by-case basis," Hollowell said. "In that respect, the tax statutes are very specific in that regard. ...It could be a worker that works 80% of the time in the city."

When reached by phone, George Kallas, who does accounting work for Triple Properties, told the Free Press he was unaware of the court complaint. In an e-mail obtained by the Free Press, one of Kallas' employees told a city auditor Tuesday that the company planned to submit its 2012 through 2015 tax returns within a week or two.

"That's surprising to us," Kallas said of the litigation. "We told them we were getting the info together for them. The auditor said, 'OK, no problem.' ...We have not been served with anything yet. We've been communicating with them and I should have those returns for them if not the end of this week, by early next week. ...I don't have any problem with them being thorough and going building to building and seeing who they can catch, but why file a lawsuit if the taxpayer is cooperating?"

Hollowell said the city is "working with them" and would like to resolve it in a meeting and not in court, if possible.

The city also filed a fourth lawsuit against Albert Hakim and City Management Group on May 15, seeking tax information. According to the lawsuit, the city informed Hakim on April 21 that he was under IRS examination for the tax years 2012 through 2015 and requested to meet with him. According to the court documents, Hakim allegedly refused and the city subsequently filed a suit.

According to his website, Hakim's company, operates as a full-service real estate owned brokerage firm and has sold "well over 9,000 properties residential and commercial" across metro Detroit.

The city is requesting information pertaining to: Salaries, bonuses and wages for employees and work rendered in the city; capital gains and losses on properties located in the city; net profits and more.

Hakim's attorney, Nathan White, said he believes the situation will be resolved by the end of business Wednesday.

"He's down there working with the city," White said. "They're all on the same page. What they're looking for, he's got. I think we should be in a good position to resolve the issues he had with them."

Hollowell said the city will continue to work with residents, employees and employers to identify and hopefully eliminate the high number of tax evaders.

"You can make any kind of claim you want, but again, in the end our actions have been consistently upheld by the courts or tax tribunal," he said. "You can expect us to continue to be vigilant."

JC Reindl contributed to this report.

Contact Katrease Stafford: kstafford@freepress.com or 313-223-4759.