EBIA Weekly Newsletter

Trial Court Rejects Challenge by State School Districts to Employer Shared Responsibility

   April 12, 2018

Indiana v. IRS, 2018 WL 898720 (S.D. Ind. 2018)

Available at https://www.gpo.gov/fdsys/pkg/USCOURTS-insd-1_13-cv-01612/pdf/USCOURTS-insd-1_13-cv-01612-1.pdf

A federal trial court has dismissed a lawsuit challenging the application of employer shared responsibility under Code § 4980H (and the related reporting requirements under Code § 6056) to state school districts. As background, applicable large employers (ALEs) may be subject to penalties under Code § 4980H if they fail to offer adequate health insurance to full-time employees and their dependents; ALEs must also file information returns under Code § 6056 to report the information necessary for the IRS to administer the Code § 4980H provisions. The court rejected the argument that application of Code § 4980H (and the related reporting requirements) to the school districts, as political subdivisions of the State of Indiana, violates the Tenth Amendment.

The school districts argued that if they were subject to Code § 4980H, they would be compelled to provide health insurance to employees to whom they otherwise would not offer it to avoid the federal penalties. The school districts contended, therefore, that the Code provisions violate the Constitution’s Tenth Amendment (which reserves to the states powers not constitutionally delegated to the federal government) by effectively forcing them to enact and enforce a federal regulatory program. The court was not persuaded and found that the provisions at issue constitute the type of non-discriminatory regulations applied to the states and private entities alike that are constitutionally permissible under the Commerce Clause.

EBIA Comment: The holding in this case that all types of employers may be considered ALEs (if they employed an average of 50 or more full-time employees (or equivalents) in the preceding year) is not entirely surprising. Even with changes to other parts of the Affordable Care Act, such as the elimination of the individual mandate penalty starting in 2019 (see our Checkpoint article), employer shared responsibility and the related reporting requirements remain intact. Notably, the IRS has begun to assess penalties against ALEs under Code § 4980H (see our Checkpoint article). For more information, see EBIA’s Health Care Reform manual at Sections XXVIII (“Shared Responsibility for Employers (Play or Pay Penalty Tax)”) and XXXVI.D (“Information Reporting of Employer-Sponsored Coverage (Applicable Large Employers)”).

Contributing Editors: EBIA Staff.