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[ATG] State and 39 school districts achieve partial victory in employer mandate challenge
Start Date: 8/13/2014Start Time: 12:00 AM
End Date: 8/13/2014
Entry Description

INDIANAPOLIS – In a partial victory for the State of Indiana and 39 school corporations suing the IRS over the “employer mandate,” a federal court has ruled that major parts of their lawsuit can continue and scheduled oral argument for October 9.  Judge William T. Lawrence of U.S. District Court for the Southern District of Indiana issued a procedural ruling late Tuesday that allows the State and school corporations to move forward with the central portion of their lawsuit challenging the employer mandate of the Affordable Care Act or ACA.

“It was important to bring this question to the federal court before the IRS could impose Draconian tax penalties on state government and school corporations under the employer mandate, so we are pleased the State and 39 school districts will have our day in court to explain why the IRS greatly overstepped its bounds.  Ultimately our aim is for the court to remove the threat of multimillion-dollar IRS penalties against the State of Indiana and its school corporations that government as employers otherwise could face,” said Indiana Attorney General Greg Zoeller, whose office represents state government in the lawsuit.

Last year, the State and 39 school corporations filed the legal challenge in U.S. District Court alleging the IRS exceeded the authority Congress gave it by imposing new requirements and penalties not found in the ACA in those states that did not set up their own insurance-purchasing exchanges. The employer mandate of the ACA requires large employers to provide employer-sponsored health insurance to all employees who work 30 or more hours per week, and the IRS can impose tax penalties of $2,000 per employee for all workers in the organization for non-compliance, even if just one employee obtains insurance with tax credits through the exchanges. 

On the main count of the lawsuit, Indiana and 39 school corporations alleged the IRS exceeded its authority under the ACA by imposing requirements Congress did not approve, and thereby violated the Administrative Procedures Act.  In the ruling, Judge Lawrence allowed the plaintiffs to proceed on that count, and denied the federal defendants’ motion to dismiss it. The Administrative Procedures Act claim is the same type of claim that recently was successful for plaintiffs in Halbig v. Burwell, a separate legal challenge to the ACA decided July 22 in the U.S. Court of Appeals for the D.C. Circuit.

Indiana and the 39 school corporations also have alleged the Congress violated the Constitution’s 10th Amendment by imposing the employer mandate against government entities such as the State and its school corporations that employ large numbers of public sector workers.  With approximately 28,000 employees in the executive branch, state government potentially could face $56 million in IRS tax penalties for non-compliance if even one part-time employee were misclassified for benefits.  School corporations often utilize part-time staff, including school bus drivers, cafeteria workers and coaches, and could face significant tax penalties for any mistakes in benefits enrollment, the plaintiffs noted.

In the complicated 23-page ruling Tuesday, Judge Lawrence allowed those 10th Amendment arguments to proceed in three counts for the 39 school plaintiffs only, though not for the State itself.  But the judge permitted the school corporations to make those same arguments in a later phase of the case – the summary judgment phase – and to combine their arguments with the State’s.  The plaintiffs have sought a declaratory judgment that the ACA’s employer mandate should not apply to them as government employers.

The only motion to dismiss that the judge fully granted in favor of the federal defendants was on the plaintiffs’ final count, dealing with future enforcement actions in 2015 the federal government has not yet taken.  An order the plaintiffs sought was denied there.

The State of Indiana does not plan to seek an interlocutory appeal and instead plans to proceed with the oral argument October 9 on summary judgment in U.S. District Court in Indianapolis.  While the State is represented by the Attorney General’s Office, the 39 school corporations are represented by the firm Bose McKinney & Evans LLP in Indianapolis in the lawsuit, State et al. v. IRS et al.   Named as defendants in the lawsuit are the Internal Revenue Service and IRS commissioner, the U.S. Department of Health and Human Services and the HHS secretary, and the U.S. Department of Treasury and the Treasury secretary. 

NOTE: For background on the lawsuit State et al. v. IRS et al., filed in U.S. District Court for the Southern District of Indiana, please see this link: http://bit.ly/Tng93D

-30-

Location Information:
State House
IN
Marion

Statewide
IN
Contact Information:
Name: Bryan Corbin
Phone: 317.233.3970
Email: Bryan.Corbin@atg.in.gov
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