Armed With Computers, This ‘Tax Commando’ Shoots Down Deadbeats

America’s most innovative tax collector posed inside City Hall’s grand corridors for a magazine earlier this year, arms crossed over a dark suit, a black-and-white stare on his face. He was a vision straight out of the 1920s, like a Fed bent on busting bootleggers.

“YOUR WORST NIGHTMARE,” the headline warned.

The image is one Nicholas Panarella Jr. doesn’t mind cultivating.

Panarella’s firm, Municipal Tax Bureau, is a hired gun for governments that want to eke every cent they can out of taxpayers. The company meshes creative plans for locating taxpayers, impressive computer firepower and a multi-state law network to fatten government books from Oklahoma to Washington, D.C., to the little county seat of Norristown, Pa.

Panarella’s 200-strong corps of taxation experts and computer geeks rooted out some $70 million in revenues last year, much of it from taxpayers not even listed on the rolls. His law firm took the most intransigent delinquents to court.

Panarella’s service offers two bonuses for elected officials: Most of the deadbeats turn out to be out-of-towners who can’t toss local politicians out on Election Day, and MTB charges no upfront fees. Instead, it takes a percentage of what it collects.

“Mayors have jumped at the opportunity of them coming in and doing an audit of taxes being paid to the city,” said Michelle Kourouma, director of the National Conference of Black Mayors.

Detroit, Kansas City, Pittsburgh, New Jersey, Oklahoma and at least 35 other taxing districts have signed up.

MTB is not without critics. Attorney Robert Kenny has sued the company, arguing that allowing MTB to determine the tax owed is “similar to having a cop getting paid a percentage of his tickets.”

And MTB’s probing can rankle taxpayers--both delinquent and honest--who feel hassled by the company’s questions or victimized when they are forced to hire accountants or attorneys to clear their record.

To cities such as Philadelphia, Panarella sells his program as a way to save urban centers ravaged by suburban growth and inner-city poverty. By enforcing wage taxes on out-of-town attorneys, doctors, contractors and others who do business in town, MTB can shore up an eroding tax base and lighten the burden on residents.

“It’s a very creative and innovative process, and one that can mean a windfall to cities,” Kourouma said.

Governments commonly farm out at least part of their tax collection dirty work to private firms, but MTB has an edge over other companies--the use of technology to locate out-of-town and out-of-state taxpayers.

“If there’s anybody else doing what he’s doing, I’m not aware of it,” said Verenda Smith of the Federation of Tax Administrators.

“It’s nothing fancy,” said Kevin Milligan, MTB’s policy director. “What is being employed is an entrepreneurial approach to using the same technology resources the IRS has at its disposal.”

The firm tracks down “economic fingerprints”--real-estate or property records, court filings and registration forms.

Panarella, 51, a former Green Beret in Vietnam, started out as a Philadelphia solicitor. In his first tax litigation experience, he fended off pickets and a campaign to have him disbarred in the 1970s when he fought a group of taxpayers who lived in New Jersey but worked in the city.

He already had earned millions for Philadelphia by the time he started MTB in 1993. He quickly earned a name for the fledgling firm by sending out 20,000 tax notices to professional athletes and agents. He ordered them to come clean with Philadelphia for all the days and nights they worked in its ballparks and stadiums.

In three months, he had negotiated a payment plan with every player. His handiwork netted millions for the city--and MTB. The company typically keeps 15% to 33% of newly discovered tax revenues.

With success in Philadelphia--$23.3 million in the first three years--came glowing media reports and nicknames, most notably “Tax Commando,” a nod to his military background. Moderate fame brought bidders: In January, Panarella sold MTB to MBIA Insurance Corp., a municipal bond insurer.

The insurer brings credibility and the capital to strengthen MTB’s backbone: a computer system and a staff with the know-how to use it.

The MTB controversy rests on one simple fact: cross-matching databases can be misleading. Computer consultants, scientists, writers and even lawyers can work in a state or city without ever going there. A simple cross-check would erroneously identify them as scofflaws, and they would receive a delinquency notice from MTB.

Delaware County spent $28,000 on apology letters after hundreds of residents complained about MTB questionnaires they received. The company sent out 78,500 letters on behalf of New Jersey in 1995; at least half of the recipients owed the state no taxes.

Finding tax delinquents is a complicated process, Milligan said, but no letter is mailed without a reason to believe that a person owes taxes.

“To take a couple of minutes to respond to yes-or-no questions is not an onerous price to pay,” Panarella said.

The four-page questionnaire riled Samuel Lonky. The retired masonry contractor had moved to Florida by the time MTB caught up with him in connection with a house he was renting out. The taxes, said an accountant who cleared up the confusion, weren’t even due yet.

Lonky found Kenny, the lawyer itching for a case to bring against Panarella. Kenny openly admits he “wants to take him out.”

His lawsuit accuses MTB of invading privacy by gaining access to confidential taxpayer information; violating due process, because of the pay-for-performance setup; and deception, because its name sounds too much like a government agency--although its letterhead reports that it is “a private company in the public service.”

New Jersey Superior Court has thrown out the Lonky claim, but that ruling has been appealed.

Most governments that use MTB say they have received only scattered complaints about its work. But they’re watching.

“You don’t want to end up in a situation where the outfit is being accused of shaking down taxpayers just because it’s going to be paid based on collections,” said Bob Thompson, deputy director of New Jersey’s Department of Taxation. “If the company is more aggressive than they have to be, you end up having to give the money back anyway.”