INDIANAPOLIS (AP) - The state of Indiana and 15 of its public school
districts filed a lawsuit Tuesday against the Internal Revenue Service over
rules it imposed to implement the federal health care overhaul.
In the lawsuit filed in U.S. District Court in Indianapolis, the state and
districts contend the federal health care law does not allow financial
penalties in states that didn’t create their own online marketplaces where
people can buy insurance. Such states instead ceded that task to the federal
The lawsuit also contends that the IRS can’t impose the “employer mandate”
requirements of the law on state and local governments.
Attorney General Greg Zoeller said in a statement that a key issue is
whether the federal government, through the IRS, can treat the state and its
political entities “as taxable entities like private businesses.” The
plaintiffs contend IRS can’t do that and that the agency’s rules violate
both the Constitution’s 10th Amendment and the federal Administrative
The suit says the IRS rules will force state and local governments,
including school districts, to reduce some part-time employees’ hours to
avoid tax penalties.
“It’s very unfortunate that by unconstitutionally interfering with our state
personnel policy, the IRS has caused hardship not only to the State but to a
number of our state employees who will see their hours reduced through no
fault of their own,” Zoeller said in a statement.
The state’s suit also contends that when Indiana elected not to create its
own state-run health care exchange and instead allowed the federal
government to design a system where Hoosiers could buy coverage, the
expected result was that those individuals would not get government
Those Hoosiers’ employers, in turn, should not have to face tax penalties
for not providing “minimum essential coverage” to all of their employees
working 30 or more hours per week, it states. But the IRS rule means that
people buying health coverage on the federal health exchange “are entitled
to the same subsidies as citizens who purchase from a State Exchange.”
Randy Taylor, assistant superintendent of the Metropolitan School District
of Martinsville, said the IRS is “overstepping” the boundaries Congress
created in the health care overhaul and that the agency’s rules will harm
the district, which is one of the plaintiffs in the suit.
“The costly and burdensome employer mandate the IRS wrongly applies to
government employers such as our school corporation interferes with our
ability to efficiently manage our workforce,” he said in a statement.
A message was left Tuesday seeking comment from the IRS’ media relations
office in Washington, but that office’s voicemail carried a message saying
the office would be closed until the partial federal government shutdown
The state’s suit asks the federal court to issue an injunction blocking the
IRS regulations and any resulting tax penalties from being imposed on the
state and school corporations.
The plaintiffs also want the federal court to issue a declaratory judgment
that finds the IRS regulations and related tax reporting and other
requirements unconstitutional and void.