Call the person at the FTB with whom you made the deal. Tell him or her the problem immediately. If you can get hold of that person you have some prayer of making some new deal with the IRS.
As Bruce suggested, be proactive, contact the FTB and try to work out a change. If you let things unfold, you will default the Offer and things will go from bad to worse.
As the others have said, you should call the Revenue Officer ('RO') with whom you had been dealing and explain the situation. Some ROs will be willing to place taxpayers into Currently Not Collectible ('CNC') status, but unfortunately California is one of the most aggressive states in the country as far as tax collection is concerned. Oddly enough, Franchise Tax Board ('FTB') representatives are generally among the most competent representatives in the nation despite their unwillingness to compromise.
Before you call the RO, be prepared to send financial statements, documentation regarding unemployment benefits, and a note from your doctor diagnosing your depression. The more evidence you have to prove financial hardship, the more likely you are to reach a positive resolution.
If all else fails, consider calling the Taxpayer Advocates at (800) 883-5910. They are often more lenient and easier to deal with than the FTB.
Consider consulting a tax professional for the best possible advice. If cost is an issue, Santa Clara University School of Law hosts a Low Income Taxpayer Clinic serving your area (assuming you live in San Francisco). You can learn more about the cilnic at law.scu.edu/taxclinic/index.cfm or by calling (408) 288-7030.
Robert Hoffman is a tax attorney licensed in California. The information presented here is general in nature and is not intended as a substitute for legal advice. This posting does not create any attorney-client relationship with the author. For competent advice about your particular situation, consult your own attorney.