Section 6166(h) provides:

(h) Election in case of certain deficiencies

(1) In general

If-

(A) a deficiency in the tax imposed by section 2001 is assessed,

(B) the estate qualifies under subsection (a)(1), and

(C) the executor has not made an election under subsection (a),

the executor may elect to pay the deficiency in installments. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.

(2) Time of election

An election under this subsection shall be made not later than 60 days after issuance of notice and demand by the Secretary for the payment of the deficiency, and shall be made in such manner as the Secretary shall by regulations prescribe.

(3) Effect of election on payment

If an election is made under this subsection, the deficiency shall (subject to the limitation provided by subsection (a)(2)) be prorated to the installments which would have been due if an election had been timely made under subsection (a) at the time the estate tax return was filed. The part of the deficiency so prorated to any installment the date for payment of which would have arrived shall be paid at the time of the making of the election under this subsection. The portion of the deficiency so prorated to installments the date for payment of which would not have so arrived shall be paid at the time such installments would have been due if such an election had been made.

Reg. section 20.6166-1(c) provides:

(c) Treatment of certain deficiencies—

(1) No election before assessment of deficiency. Where a deficiency is assessed and no election, including a protective election, has been made under section 6166(a) to pay any tax in installments, the executor may elect under section 6166(h) to pay the portion of the deficiency attributable to the closely held business interest in installments. However, this is true only if the estate qualifies under section 6166 based upon values as finally determined (or agreed to following examination of a return). Such an election is exercised by filing a notice of election with the Internal Revenue Service office where the estate tax return was filed. The notice of election must be filed within 60 days after issuance of notice and demand for payment of the deficiency, and it must contain the same information as is required under paragraph (b) of this section. The notice of election is to be accompanied by payment of the amount of tax and interest, the date for payment of which has arrived as determined under paragraphs (e) and (f) of this section, plus any amount of unpaid tax and interest which is not attributable to the closely held business interest and which is not eligible for further extension (or currently extended) under another section (other than section 6166A).

(2) Election made with estate tax return. If the executor makes an election under section 6166(a) (other than a protective election) at the time the estate tax return is filed and a deficiency is later assessed, the portion of the deficiency which is attributable to the closely held business interest (but not any accrued interest thereon) will be prorated to the installments payable pursuant to the original section 6166(a) election. Any part of the deficiency prorated to an installment, the date for payment of which has arrived, is due upon notice and demand. Interest for any such period, including the deferral period, is payable upon notice and demand.

(3) Portion of deficiency attributable to closely held business interest. Only that portion of any deficiency which is attributable to a closely held business interest may be paid in installments under section 6166. The amount of any deficiency which is so attributable is the difference between the amount of tax which the executor has previously elected to pay in installments under section 6166 and the maximum amount of tax which the executor could have elected to pay in installments on the basis of a return which reflects the adjustments that resulted in the deficiency.

In CCA 201302037 the Office of Chief Counsel stated that, if no part of the deficiency is attributable to a closely held business interest, no part of the deficiency can be deferred under section 6166(h), as follows

I agree that the amount that could have been deferred under IRC § 6166 when the estate tax return was filed can't be made subject to IRC § 6166 when a deficiency that’s not attributable to the closely - held  business is later determined. The estate full - paid the tax shown on the return and it’s now too late to make the IRC 6166(a) election and there’s no 9100 relief available for the election even if an argument  could be made for relief. And as the tax was full - paid, the estate didn’t try to make a protective election  with the estate tax return under Treas. Reg. § 20.6166 - 1(d) as that election only defers payment of any  portion of tax remaining unpaid. W here no election is made when the return is filed and, later, a  deficiency is determined, the IRC § 6166(h) election for certain deficiencies only allows that portion of the  deficiency attributable to a closely - held business to be paid in installments under section 6166. Treas.  Reg. § 20.6166 - 1(c)(1). The IRC § 6166(h) election doesn’t apply to any tax originally determined to be  due. Treas. Reg. § 20.6166 - 1(a). Treas. Reg. § 20.6166 - 1(c)(3) doesn't allow any tax originally determined to be due to be subject to the IRC § 6166(h) election; that provision only sets a cap on the  amount of the deficiency attributable to the closely - held business. The cap is determined by seeing  what's left after using the adjusted figures to set the maximum amount that could be paid in installments and reducing it by any amount already elected. Please give me a call if you want to discuss.

Note: In CCA 200909047 Counsel said that a §6166(h) election may be made on a deficiency even if the original return was filed late. This is one instance where timely filing of the return is not a prerequisite for a §6166 extension. However, the deficiency must not be due to negligence, intentional disregard of rules and regulations or fraud.

The actual computations in section 6166(h) deficiency situations are sometimes counterintuitive. See PLR 8846001 and our computations that illustrate its provisions.

In general, an estate tax deficiency can be caused by one or more of the following:

1. An increase in the closely held business value;
2. An increase in the values of other estate assets not qualified under §6166; and
3. A decrease in allowable estate tax deductions or credits.

Our computation examples illustrate the effects of each of these types of estate tax deficiencies on §6166(h) elections.