Tom,
I hope you realize that the 3 inch twenty gauge is going to reach higher chamber pressures than your short chambered 16 gauge does. The length you cut it off kind of depends on your 16 gauge barrel size and shape. Basicaly, you want the new sleever barrel to have as much available wall thickness as possible, yet still leave enough meat in the monoblock wall to hold it securely. If you can cut it off out at the three inch length and still have enough wall thickness left for the sleever to butt up against, then that's where I would cut it off. It is a balancing act for sure.
Good Luck with your project. Bob H.