Introduction: Why an LT16 Notice Matters More When You Live in Britain
An LT16 notice is a collection letter from the IRS saying that you owe unpaid tax, that its records show missing returns, or both. It is not yet a levy notice. However, it tells you that your account has left the ordinary billing cycle and now sits with the IRS collection function, which has far stronger tools than the reminder letters that came before.
For an American executive, investor or company owner in London, the letter usually arrives late, at an old address, and describes a balance that bears little resemblance to the tax genuinely due. That gap is the whole opportunity. In our experience, most balances on an LT16 notice sent to clients in Britain fall sharply once a proper return claims UK tax as a credit.
At TaxYork, we prepare US and UK returns for high-earning Americans and dual nationals living in Britain. We wrote this guide because the pages ranking for this letter are written for wage earners in Ohio or Texas. None of them explains what happens when the IRS has computed your tax without your UK income, your UK tax or your basis in the shares you sold.
LT16 Notice in Short: The Answer Before the Detail
The IRS explanation of the LT16 notice says the agency is trying to collect unpaid taxes or that its files show missing returns. It warns that ignoring the letter can lead to seizure of assets or wages and a federal tax lien. Furthermore, it asks you to file every missing return, pay what you can and contact the IRS by the date printed on the letter.
What it does not say is that, for someone abroad, the correct reply is rarely a cheque. Instead, the correct reply is usually a set of accurate returns that replace the IRS figures, followed by a payment plan for whatever genuinely remains.
Who This Guide Is Written For
This guide suits US citizens and green card holders resident in Britain, including accidental Americans and dual nationals, who have received an LT16 notice for one or more years. It also suits anyone who has had an earlier balance-due letter. If your letter is the first reminder, our guide to the IRS CP14 notice for Americans in Britain explains that earlier stage.
What an LT16 Notice Tells You About Your IRS Account
The letter code itself carries information. Letters beginning "LT" come from the Automated Collection System, the IRS's telephone and computer-driven collection unit. Consequently, an LT16 notice means your case has passed through the service centre notice stream, usually the CP14, CP501 and CP503 sequence, or the CP59 sequence for missing returns, without being resolved.
Balance Due, Missing Returns or Both
The notice usually lists either tax periods with a balance, tax periods with no return on file, or a mixture. The Taxpayer Advocate Service page on the LT16 confirms that it covers a balance due, unfiled returns, or both. Therefore, read the period list carefully, because each line demands a different response.
A balance line means an assessment already exists. That assessment may come from a return you filed without paying, or from a substitute for return that the IRS prepared itself. A missing-return line, by contrast, means no assessment yet exists, although one may follow if you stay silent.
Why It Is Not Yet a Final Notice of Intent to Levy
The LT16 notice carries no collection due process rights. Those arrive only with the LT11 or Letter 1058, which are final notices of intent to levy under section 6330. Our guide to the collection due process hearing for Americans in Britain covers that later stage in detail.
Nevertheless, the distinction has a practical cost. Under section 6651 of the Internal Revenue Code, the failure-to-pay penalty runs at 0.5 percent a month, but it doubles to 1 percent a month starting ten days after a notice of intent to levy. Acting at the LT16 stage keeps you on the lower rate.
Why the Letter May Reach You Late
IRS response dates run from the date printed on the letter, not the date it lands on your doormat. International post from the United States can take two to four weeks. Moreover, many Americans in Britain still have an old US address on file, so the letter may sit unopened at a parent's home in Connecticut. Check the printed date first, and assume you have less time than you think.
How the IRS Builds the Balance on Your LT16 Notice
When the IRS holds no return, it does not wait for one. Instead, its Automated Substitute for Return programme uses the information returns it already holds, such as Forms 1099-B, 1099-DIV and W-2, to build a return on your behalf under section 6020(b).
The Substitute for Return Problem
A substitute for return is written to maximise the tax. It uses single filing status, the standard deduction and no dependants. Most damagingly for investors, it usually treats the gross sale proceeds on a Form 1099-B as pure gain, because the IRS does not always hold your cost basis.
Furthermore, a substitute for return knows nothing about your UK salary, your UK dividends or the UK tax you paid. It therefore claims no foreign tax credit at all. The result is an assessed balance that can be ten or twenty times the true liability.
The Foreign Earned Income Exclusion Trap
Many Americans in Britain assume they can claim the foreign earned income exclusion whenever they finally file. That assumption is dangerous once the IRS has acted. Under Treasury Regulation 1.911-7, a late exclusion election is generally valid if you owe no US tax after the exclusion. Where tax remains, however, the late election works only if you file before the IRS discovers your failure to elect.
In the Redfield case, the Tax Court held that preparing a substitute for return can itself evidence that discovery. Accordingly, a high earner with investment income on top of salary may find the exclusion closed off. The foreign tax credit, by contrast, carries no comparable election trap, and it usually produces the better result for higher-rate UK taxpayers anyway. We explain the trade-off in our page on tax treaty and foreign tax credit optimisation.
Penalties and Interest Stack Up
The failure-to-file penalty adds 5 percent a month, capped at 25 percent of the net tax due. On top of that, the failure-to-pay penalty adds 0.5 percent a month up to a further 25 percent. In addition, interest compounds daily at the federal short-term rate plus three points. The IRS kept the individual underpayment rate at 7 percent for the fourth quarter of 2026.
Importantly, every one of those additions is calculated on the assessed tax. If the assessment is inflated, the penalties and interest are inflated in proportion. Correcting the tax therefore corrects everything built on top of it.
What the IRS Can Do After an LT16 Notice When You Live Abroad
Americans in Britain often believe that distance protects them. In practice, it protects your UK assets but leaves your US assets, your passport and your future transactions exposed.
US Assets Are Within Reach
After the LT11 or Letter 1058 stage, the IRS can levy a US brokerage account, US rental income, a US bank account or Social Security benefits. A levy on investments forces a sale on the day the levy lands, whatever the market is doing. For a client holding concentrated US stock, the real cost of that sale can exceed the tax itself.
The IRS can also file a Notice of Federal Tax Lien. Investopedia's overview of a tax lien explains how it attaches to your property and becomes public. A lien complicates any sale or refinancing of US property, and it is one of the triggers for passport action.
Passport Certification Above $66,000
Under section 7345, the IRS can certify a seriously delinquent tax debt to the State Department, which may then deny or revoke a passport. The IRS passport page lists the 2026 threshold as $66,000, including penalties and interest. Certification also requires a filed lien with lapsed hearing rights, or a levy.
For a dual national, losing a US passport is more than an inconvenience. US law requires a US citizen to enter and leave the United States on a US passport. Consequently, a balance that crosses $66,000 through interest alone can disrupt business travel to New York.
Why HMRC Will Not Collect for the IRS
UK assets are a different matter. English courts follow the long-standing revenue rule and do not enforce foreign tax debts. Moreover, the US-UK treaty's exchange of information and administrative assistance article does not give the IRS a general route to collect through HMRC. Your UK bank accounts and UK home are therefore beyond direct IRS levy.
However, that protection does not make the debt go away. The collection statute in section 6502 gives the IRS ten years from assessment to collect, and the debt follows you into any future US transaction, inheritance of US assets or return to the United States.
Five Questions to Answer Before You Reply to an LT16 Notice
We use the same five-question triage for every client who brings us an LT16 notice. It turns a frightening letter into a sequence of decisions, and it stops you paying money you do not owe.
Question One: Is Each Balance Your Own Return or an IRS Estimate?
Start with your IRS account transcripts, which you can download through an IRS online account or obtain through a representative. A transcript entry showing code 150 with an "SFR" reference means the IRS created the return. If so, the balance is an estimate, and you replace it by filing an accurate original return for that year, which the IRS processes through its reconsideration procedures.
Question Two: How Many Missing Years Must You File?
The IRS does not usually demand every year you ever missed. Its Internal Revenue Manual policy statement on delinquent returns, known as P-5-133, generally limits enforcement to six years. Nevertheless, years listed on the LT16 notice must be filed whatever their age, and any year with a refund or foreign tax credit carryover may be worth filing anyway.
Question Three: Which Compliance Route Fits Your Facts?
Missing returns often travel with missed FBARs and missed Forms 8938. If your failure was non-wilful, the IRS Streamlined Filing Compliance Procedures may still offer a penalty-free route for the unfiled years. However, eligibility depends on whether any year is under civil examination, and an open or assessed substitute for return needs careful review. Our IRS Streamlined filing service assesses that question before anything is sent.
Alternatively, where every year can simply be filed and the tax paid, a straightforward late filing may be cleaner. The decision turns on wilfulness, the number of years and the size of any FBAR exposure.
Question Four: What Is the Corrected Balance?
Once the returns are prepared, you know the true liability. For most clients paying UK tax at 40 or 45 percent, the foreign tax credit removes most or all US income tax on UK earnings. What often remains is US tax on investment income, such as the 3.8 percent net investment income tax, which the IRS does not accept that foreign tax credits can reduce.
Question Five: How Will You Pay What Remains?
If a balance survives, you can pay in full, request a payment plan or, in hardship cases, ask the IRS to pause collection. The IRS payment plan pages allow online applications for individual balances up to $50,000. Above that, you will usually need a financial statement, and a high earner should expect the IRS to scrutinise UK assets closely.
Case Study: A $131,000 LT16 Notice and a London Managing Director
The following illustration uses invented figures, but the pattern is one we see often among investment bankers and company owners in London.
The Facts on the Account
A managing director in Kensington, a dual national US UK client, moved to London in 2019. He earned £310,000 a year, paid UK tax under PAYE and assumed that this covered everything. He filed no US returns for 2021, 2022 or 2023. In 2022 he sold shares held in a US brokerage account for $420,000 of gross proceeds. His real cost basis was $240,000.
The IRS held the Form 1099-B but no basis figure. Its substitute for return for 2022 treated the full $420,000 as gain, ignored his UK salary entirely and assessed $96,400 of tax. After failure-to-file and failure-to-pay penalties and interest, the LT16 notice he finally opened in 2026 showed $131,000 for 2022 and listed 2021 and 2023 as missing returns.
What the Real Returns Showed
We prepared accurate 2021, 2022 and 2023 returns. His true 2022 gain was $180,000, not $420,000. US income tax on that gain at 15 percent was $27,000, while UK capital gains tax at 20 percent came to roughly $36,000. The foreign tax credit therefore eliminated the US income tax on the gain. Similarly, the UK tax on his salary eliminated the US tax on his earnings for all three years.
What remained was the 3.8 percent net investment income tax on the gain, or $6,840. With failure-to-file and failure-to-pay penalties on that smaller figure and roughly three years of interest, his corrected 2022 balance was about $11,400. The 2021 and 2023 returns showed no US tax due, along with excess foreign tax credits to carry forward.
The Outcome and the Lesson
The IRS accepted the original 2022 return in place of its substitute and reduced the account. He paid the remaining balance in one sum and sought first-time abatement on the failure-to-file penalty. Crucially, the original $131,000 balance was already above the $66,000 passport threshold, so a lien at the next stage could have led to certification.
The lesson is simple. Paying the LT16 notice as printed would have cost him almost $120,000 more than the law required. Filing accurate returns quickly cost a fraction of that and ended the collection case.
How to Respond to an LT16 Notice From Britain
The response itself follows a clear order. First, note the response date and call the IRS before it passes. From the UK, the IRS international contact page lists +1 267-941-1000, which is not toll-free and opens at 6 a.m. Eastern time, or 11 a.m. in London. Tell the collection assistor that accurate returns are in preparation and ask for a hold on enforcement.
Next, appoint a representative. A signed Form 2848 power of attorney lets your preparer speak to the Automated Collection System, obtain transcripts and request collection holds. This matters for a London client, because the number printed on the letter is usually a US domestic collection line, and hold times on any IRS line can swallow a London afternoon.
Then file the missing and replacement returns together, with a cover letter that cross-references the LT16 notice. Send them by a tracked international service and keep proof of posting. Meanwhile, deal with any missed FBARs through FinCEN's BSA E-Filing System for the FBAR, because the FBAR is a separate filing that the IRS collection function does not resolve.
Finally, once the corrected balance posts, settle it or agree a payment plan, and ask for penalty relief. The IRS first-time abatement policy can remove failure-to-file and failure-to-pay penalties for one year where your prior three years are clean. Reasonable cause relief may cover the other years.
How TaxYork Can Help
TaxYork provides comprehensive US tax return preparation for expats, together with the matching UK returns, so your foreign tax credits and UK reliefs line up year by year. When a client brings us an LT16 notice, we pull the transcripts, identify any substitute for return, prepare accurate replacement and missing returns, and deal directly with the Automated Collection System under a power of attorney.
We also review the wider picture, including missed FBARs, Forms 8938, unreported UK pensions and ISAs, and any UK returns that need correcting. Our FBAR and FATCA reporting service handles the foreign account side within the same engagement, so nothing is left open.
Conclusion
An LT16 notice is the point at which the IRS stops reminding you and starts collecting. For an American in Britain, the printed balance is frequently built on an IRS estimate that ignores UK tax, cost basis and every relief the treaty provides. Consequently, the right answer is almost never to pay the figure on the letter.
Instead, act before the response date, establish whether each balance is your own return or an IRS substitute, file accurate returns that claim your foreign tax credits, and only then pay what truly remains. Doing so keeps you below the passport threshold, away from levies on your US assets and in control of the timetable.
Contact Us
If you have received an LT16 notice or any IRS collection letter while living in the UK, we can review your transcripts and tell you what you actually owe. Book a consultation with our US-UK team, email hello@taxyork.com or call 020 3488 8606.
Disclaimer
This article is general information for US and UK taxpayers and does not constitute tax or legal guidance for your specific circumstances. The case study is an illustration with invented figures. Tax law, IRS procedures and exchange rates change, so confirm the rules that apply to you with a qualified professional before you act. TaxYork accepts no liability for action taken in reliance on this article without an engagement.