The Madison Consolidated and Southwestern school corporations, along with 13 other public school districts and the state of Indiana, have been named as co-plaintiffs in a lawsuit filed against the IRS over rules imposed to implement the federal health care overhaul.

In the lawsuit filed in U.S. District Court in Indianapolis, the state and school 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 government.

The lawsuit also contends that the IRS can't impose the "employer mandate" requirements of the law on state and local governments.

Todd Bass, Madison Consolidated Schools school board president, called the lawsuit, "Something I think we need to participate in," at Tuesday night's school board meeting.

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 Procedure Act.

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.

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 subsidies.

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 "are entitled to the same subsidies as citizens who purchase from a State Exchange."

"Our hope is that, should this go through, that school corporations would be exempt from the Affordable Care Act," Bass said. "We could then move our part-time employees back beyond the 30-hour threshold."

Bass recalled a decision the board made in June to reduce weekly hours and eliminate health care benefits for bus drivers, bus aides, some cafeteria employees and instructional assistants, because the school district can't afford to pay for their health care, which it would be legally obligated to do if those employees worked more than 30 hours per week.

"(The Affordable Care Act) forced us to do things to employees that we did not want to do," Bass said. "So, hopefully by participating in this, we can get that reversed and make some corrections to things that we've done."

Southwestern Superintendent Steve Telfer said the Southwestern school board has been forced to reduce part-time employees to 5.5 hours a day to accommodate the new law. The other option would be to maintain the same part-time hours and provide health care - a scenario Telfer said is financially impossible for the school.

"We could not possibly afford to give them insurance, but it's not fair for them to see their hours reduced either," Telfer said.

Telfer estimates that the school has about 50 part-time workers in positions of special education aides, Title 1 aides, bus drivers and cafeteria workers.

In some cases, long-time part-timers have left the school to seek employment elsewhere. At the same time, the school continues to tweak the schedule to fill the gaps in hours lost.

"Basically, it's a hardship all around," he said.

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 ends.

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.

The schools in the suit include: Benton Community School Corp., Community School Corp. of Eastern Hancock County, John Glenn School Corp., the Metropolitan School District of Martinsville, Monroe-Gregg School District, Mooresville Consolidated School Corp., North Lawrence Community Schools, Northwestern Consolidated School District of Shelby County, Perry Central Community Schools, Shelbyville Central Schools, South Henry School Corp., Southwest Parke Community School Corp. and Vincennes Community School Corp.