Question:

I know that it is my responsibility to identify the intended users when I perform an assignment.

USPAP defines “intended user” as the client and any other party as identified, by name or type, as users of the appraisal, appraisal review, or appraisal consulting report by the appraiser on the basis of communication with the client.

However, I need clarification regarding whether certain parties should automatically be considered intended users in certain circumstances described below.

A.

If I perform an appraisal for estate tax purposes and the client will provide my report to the IRS with her tax return, must the IRS be identified as an intended user in this situation?

B.

I have been hired by an attorney representing a husband in a divorce to appraise certain assets held in the marital estate and to appear as an expert witness.  I know my report will go to the court as well as to the parties on the other side of the litigation.  Must the court and/or the parties on the other side of the litigation be identified as intended users?

C.

I frequently perform appraisals for purposes of purchase price allocation.  The corporation that is my client will use the values for financial reporting purposes.  My reports are provided to the auditors of the corporations for their review as part of the audit process.  In such cases, must the auditors be identified as intended users?

D.

I am appraising a property for a regulated lender.  I know that my appraisal will be reviewed by the bank’s outside auditors and the OCC reviewers. Must the auditors and OCC reviewers be identified as intended users?

Response:

No. Intended users are identified by the appraiser through communication with client and are not established based on who might receive or use the report.

The definition of "intended user" has a specific meaning in USPAP. In the context of the USPAP definition of intended user, the fact that the IRS, the court, an independent auditor, or the OCC in the above cases use your report for review, audit, or other purposes does not automatically make them intended users. These parties receive the report through established processes of disclosure or regulation.

One way to understand the concept is to think about what the intended use is for each party.  The appraiser must identify both the intended users and the intended use of the appraisal, because these two factors affect many elements of the appraisal assignment, such as the appropriate scope of work and the appropriate type of report.

In each case, the use of the report by these other parties is different from the intended use the appraiser identified, which was related to the client’s use.  Such other parties may be evaluating the decision made by the appraiser’s client to obtain an appraisal, as well as the appraisal results, and other matters of which the appraiser may not be aware.  As an example, the client filing the estate tax return is using the appraisal as an indication of the amount to state on the tax form.  However, the IRS may “use” the appraisal report to determine whether the value reported on the tax return is adequately supported, whether they agree with the value, and/or whether they should challenge the taxpayer because they disagree with the value.

As indicated in Statement on Appraisal Standards No. 9, Identification of Intended Use and Intended User,

Parties who receive a copy of an appraisal, appraisal review, or appraisal consulting report as a consequence of disclosure requirements applicable to an appraiser’s client do not become intended users of the report unless they were specifically identified by the appraiser at the time of the assignment.