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[ATG] Attorney General: Schools from Wayne County area join State v. IRS lawsuit to block fines
Start Date: 2/6/2014Start Time: 12:00 AM
End Date: 2/6/2014
Entry Description

RICHMOND, Ind. – Several school corporations in Wayne County and surrounding counties are among the 39 schools that recently joined the State of Indiana in a lawsuit against the Internal Revenue Service, challenging the multi-million-dollar tax penalties the IRS potentially could impose against state and local governments in 2015 under the “employer mandate” of the Affordable Care Act (ACA).  Twenty-four schools filed an amended complaint Dec. 9 in federal court, adding to the original group of 15 schools that joined the state in filing the lawsuit Oct. 8.

The total 39 school plaintiffs and the State allege the IRS exceeded its legal authority under the ACA, the federal healthcare restructuring law Congress passed in 2010.  The IRS in 2013 issued a regulation that has the effect of charging large financial penalties in all states against large employers who do not offer health insurance to those working more than 30 hours per week as full-time employees.  The lawsuit alleges the IRS regulation contradicts specific ACA wording Congress passed, which had authorized the IRS to impose employer-mandate penalties only in those states where state-established health-insurance exchanges exist.  Indiana is one of 27 states that opted not to create a state exchange, meaning the federal government runs an exchange for Indiana residents.

Under the employer mandate, the potential penalty large employers face for non-compliance is $2,000 per employee for all full-time workers in the organization.  Indiana’s state government employs approximately 28,000 executive branch workers, meaning under the regulation the State could face the potential of $56 million in tax penalties if even one employee were misclassified for benefits.  The State is represented by Indiana Attorney General Greg Zoeller’s office.

“The federal government has failed to demonstrate that the IRS has authority to impose a tax penalty upon the State of Indiana and our public schools; and my office looks forward to challenging the reach of the IRS and defending the principle of intergovernmental tax immunity between the federal and state governments.  The objective of the case is to defend our state’s fundamental authority to structure our government workforce to provide services to our citizens; and individuals’ access to health insurance never has been the focus of this suit,” Zoeller said.

The amended lawsuit asks the federal court to issue an injunction blocking the IRS and other federal agencies from applying the unauthorized regulation and penalties against the school corporations and State as government employers.  Plaintiffs also ask the federal court to issue a declaratory judgment finding the IRS regulation as applied to State government and schools is unconstitutional and void under the Tenth Amendment.

The local school corporations from Wayne, Randolph and Fayette counties that joined the amended complaint filed Dec. 9 are:         

  • Nettle Creek School Corporation, Hagerstown, Ind.
  • Northeastern Wayne School Corporation, Fountain City, Ind. 
  • Western Wayne Schools, Pershing, Ind. 
  • Fayette County School Corporation, Connersville, Ind.  
  • Monroe Central School Corporation, Parker City, Ind. 
  • Union School Corporation, Modoc, Ind. 

“Facing the potential of such draconian tax penalties, the State and 39 schools are unwilling to be fined and then attempt to seek a tax refund later.  The proper method of raising this question to the federal court to decide is through our filing this legal challenge.  Our State should be protected as is constitutionally guaranteed from federal government overreach, and the participation of so many school corporations in the challenge reflects mutual concern that this constitutional principle has been undermined by the IRS’s actions,” Zoeller said.

In addition to the six local schools that joined the case, 18 other school districts across the state also are listed as new plaintiffs in the amended complaint filed Dec. 9:

  • Taylor Community School Corporation, Kokomo, Ind.
  • Northwestern School Corporation, Kokomo, Ind.
  • Area 30 Career Center Education Interlocal, Greencastle, Ind.
  • Cloverdale Community School Corporation, Cloverdale, Ind.
  • Greencastle Community School Corporation, Greencastle, Ind.
  • Old National Trail Special Services Cooperative, Greencastle, Ind.
  • South Putnam Community School Corporation, Greencastle, Ind.
  • North Putnam Community School Corporation, Bainbridge, Ind.
  • Charles A. Beard Memorial School Corporation, Knightstown, Ind.
  • Daleville Community Schools, Daleville, Ind.
  • Eastern Howard School Corporation, Greentown, Ind.
  • East Porter County School Corporation, Kouts, Ind.
  • Eminence Community School Corporation, Eminence, Ind.
  • North West Hendricks School Corporation, Lizton, Ind.
  • Salem Community Schools, Salem, Ind.
  • Shelby Eastern School Corporation, Fairland, Ind.
  • South Gibson School Corporation, Fort Branch, Ind.
  • Western School Corporation, Russiaville, Ind.

The 15 school corporations that were the original plaintiffs along with the State in the initial complaint of Oct. 8 are: 

  • South Henry School Corporation, Straughn, Ind.
  • Metropolitan School District of Martinsville, Martinsville, Ind.
  • Perry Central Community Schools, Leopold, Ind.
  • Benton Community School Corporation, Fowler, Ind.
  • Community School Corporation of Eastern Hancock County, Charlottesville, Ind.
  • John Glenn School Corporation, Walkerton, Ind.
  • Monroe-Gregg School District, Monrovia, Ind.
  • Mooresville Consolidated School Corporation, Mooresville, Ind.
  • North Lawrence Community Schools, Bedford, Ind.
  • Northwestern Consolidated School District of Shelby County, Fairland, Ind.
  • Shelbyville Central Schools, Shelbyville, Ind.
  • Southwest Parke Community School Corporation, Montezuma, Ind.
  • Vincennes Community School Corporation, Vincennes, Ind.
  • Madison Consolidated Schools, Madison, Ind.
  • Southwestern Jefferson County Consolidated School Corporation, Hanover, Ind.

The total 39 school corporations are represented by Bose McKinney & Evans LLP, while the State is represented by the Attorney General’s Office in the lawsuit, which is filed in U.S. District Court for the Southern District of Indiana.  The federal defendants include the IRS and its commissioner John Koskinen, the U.S. Department of Health and Human Services and HHS Secretary Kathleen Sebelius, the U.S. Department of Treasury and Secretary of the Treasury Jacob Lew, and the U.S. Department of Labor and Labor Secretary Thomas Perez.  February 14 is the deadline for the State and school plaintiffs to file their next pleading in federal court, and it is anticipated the case will be scheduled for oral argument later this year before Judge William T. Lawrence.

NOTE: The amended complaint in State et al v. IRS et al is at this link:  http://bit.ly/1bRTFi6
A recent opinion piece by Indiana Attorney General Greg Zoeller on the lawsuit is at this link: http://bit.ly/1gJDVRw
More information about the State et al v. IRS et al lawsuit is at this link:  http://bit.ly/1evfjIW

-30-

Contact Information:
Name: Bryan Corbin
Phone: 317.233.3970
Email: Bryan.Corbin@atg.in.gov
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  • IN.gov Category:
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  • Taxes & Finance
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