Quick overview

LT16 and LT17 are routine IRS letters sent when the agency identifies either a late return (LT16) or an unpaid tax balance (LT17). These letters are not final assessments in every case, but they are formal IRS communications that explain what the IRS believes you owe, why, and how to respond. Ignoring them makes outcomes worse: penalties compound, interest accrues, and the IRS can move from notices to collection actions.

(For general IRS guidance on notices and what to do, see the IRS: “Understanding Your Notice or Letter” https://www.irs.gov/individuals/understanding-your-notice-or-letter.)

How LT16 and LT17 work in plain terms

  • LT16 (late-filing notice): Sent when the IRS has reason to believe you didn’t file a required return by the due date. The letter explains the failure-to-file penalty that may apply and gives instructions to file and pay or to contest the claim.
  • LT17 (late-payment notice): Sent when the IRS identifies unpaid tax for a return that was filed or assessed. The letter details the unpaid balance, penalty for late payment, and the interest that has accrued.

Key rules to keep in mind (IRS rules as of 2025):

  • Failure-to-file penalty: generally 5% of the unpaid tax for each month (or part of a month) your return is late, up to 25% of the unpaid tax. (IRS: “Penalty for failing to file” https://www.irs.gov/payments/penalties)
  • Failure-to-pay penalty: generally 0.5% of the unpaid tax for each month (or part of a month) after the due date, up to 25% of the unpaid tax. (IRS: “Understanding tax penalties” https://www.irs.gov/payments/penalties)
  • If both penalties apply in the same month, the failure-to-file penalty is reduced by the amount of the failure-to-pay penalty for that month, so the combined penalty generally won’t exceed 5% of the unpaid tax per month. (IRS guidance)
  • Interest on unpaid tax starts from the original due date of the return and compounds daily; the rate is set quarterly by the IRS (federal short-term rate plus 3 percentage points). See the IRS interest page for current rates. (IRS: “Interest Rates” https://www.irs.gov/newsroom/interest-rates)

Also remember: an extension to file (Form 4868) extends only the filing deadline, not the payment deadline. Tax you expect to owe should still be paid by the original due date to avoid LT17-style penalties.

What the letter will include and how to read it

Most LT16/LT17 letters include:

  • Tax year at issue and taxpayer identification
  • The IRS’s calculation of tax, penalties, and interest
  • A deadline to respond (commonly 30 days) and instructions to pay or contest
  • Contact information and options to request more time or a payment plan

When you open the letter:

  1. Confirm the tax year and taxpayer name/SSN/EIN match your records.
  2. Compare the IRS numbers to your filed return and any payment records (bank, EFTPS, payment voucher).
  3. Note the due date for response and any payment options provided.
  4. Don’t sign anything or provide additional payments until you fully review — but don’t ignore the deadline.

Immediate steps to take (checklist)

  1. Scan and save the letter digitally; keep the original.
  2. Verify whether a return was filed for the tax year in question.
  3. If you didn’t file, prepare and file the return immediately — filing reduces failure-to-file penalty exposure.
  4. If you did file, gather proof (mailed certified mail receipt, e-file confirmation, bank record of payment).
  5. Log into your IRS online account to view your balance and payment history (IRS: “View Your Account” tools on irs.gov).
  6. If you can pay in full, do so online (Direct Pay, EFTPS) to stop additional interest and penalties. If you cannot pay in full, evaluate installment agreement options.
  7. Contact a tax professional promptly if the amount is large, if you want to request penalty abatement, or if dispute is likely.

Payment options and when to consider each

Note: Entering an installment agreement does not erase penalties or interest, but it can stop collection actions and provide a predictable monthly payment.

Asking for penalty relief: when it’s possible and how to document it

The IRS may abate penalties if you qualify for reasonable cause or first-time penalty abatement (FTA). Common qualifying reasons include serious illness, natural disaster, or erroneous advice from a tax professional. Typical steps:

  1. Gather documents showing the reason you missed the deadline (medical records, hospital bills, death certificate, disaster declarations, transcripts of communications with tax professionals or the IRS).
  2. Request relief in writing or via a tax pro — include a concise statement of facts and the supporting evidence.
  3. For FTA, you must generally have a clean compliance history (no penalties for the prior three years and current filing and payment compliance).

A tax professional can help prepare a focused abatement request. For IRS procedural details, see IRS penalty relief guidance (IRS: “Penalty Relief” pages on irs.gov).

Real-world examples (anonymized)

  • Case A (LT16): A sole proprietor filed six months late. The LT16 showed failure-to-file penalties that had already accumulated. Filing immediately and requesting penalty abatement based on recent hospitalization reduced the assessed penalty by about half. The client then set up an installment agreement to pay remaining balance.

  • Case B (LT17): A small business owner filed but underpaid estimated taxes and received LT17. Interest and monthly failure-to-pay penalties had accrued. We calculated the cheapest path: a short-term installment agreement and timely future estimated payments to avoid repeat notices.

These examples underline two lessons: file even if you cannot pay in full, and start a conversation with the IRS (or a tax pro) early.

Common mistakes to avoid

  • Treating a letter as junk mail. Every IRS notice should be read and tracked.
  • Assuming an extension to file extends time to pay. It does not.
  • Overlooking the opportunity to request penalty abatement or a payment plan.
  • Waiting until collection letters or liens appear; resolve earlier for better options.

Frequently asked practical questions

Q: How long do I have to respond?
A: The response period is shown on the letter (commonly 30 days). Responding quickly preserves options and shows good faith.

Q: Can LT16 or LT17 lead to wage garnishment or liens?
A: Yes. If liabilities remain unpaid, the IRS can file a Notice of Federal Tax Lien or issue a levy on wages, bank accounts, or other assets after following statutory notice procedures. (IRS collection procedures: https://www.irs.gov/businesses/small-businesses-self-employed/collection-and-levy)

Q: Will payment plans affect my credit score?
A: IRS liens that are filed publicly can affect credit; installment agreements themselves are not directly reported to credit bureaus, but consequences like liens or levies can show up on credit reports.

Practical scripts and documentation tips

  • If you call the IRS, have the letter in front of you, your taxpayer identification, and recent bank/payment records. Note the name and ID of any IRS representative.
  • For penalty abatement requests, prepare a one-page summary of facts, a timeline, and 2–4 supporting documents.
  • If you hire a tax pro, provide signed Form 2848 (Power of Attorney) so they can communicate directly with the IRS on your behalf.

Authoritative sources and further reading

Professional disclaimer

This article is educational and does not substitute for personalized tax advice. Tax rules change and facts matter; consult a qualified tax professional (CPA, enrolled agent, or tax attorney) for guidance about a specific LT16 or LT17 notice.

If you received an LT16 or LT17, treat the letter as the IRS asking for a conversation: gather documents, confirm the facts, and respond quickly. Handling the notice promptly usually reduces overall cost and stress.