Some taxpayers cannot pay anything. Income covers rent and food and nothing else, or there is no income at all. For them a payment plan is a promise that will be broken, and an offer in compromise may be out of reach because even a small lump sum is impossible.
Both agencies have a status for that situation. The IRS calls it Currently Not Collectible (CNC). The Franchise Tax Board calls it financial hardship. In each case the agency agrees, after reviewing your finances, to stop active collection: no levies, no garnishments, no payments demanded. The debt does not go away, but the pressure does, and with both agencies the time the agency has to collect keeps running while the account sits on hold.
This article follows a collection hold in the order it progresses.
What a Hold Does and Does Not Do
- It stops enforcement. Wage garnishments and bank levies are released, and no new ones are issued while the status lasts.
- It requires no payments. Unlike a payment plan, nothing is due each month.
- It does not erase the debt. Penalties and interest continue to accrue, and the balance grows.
- It does not stop refund offsets. Any tax refund you are owed is applied to the balance.
- It may not stop a lien. The IRS can still file a federal tax lien on larger balances, and the FTB can record a state lien.
- It is not permanent. The IRS reviews the account and resumes collection if your finances improve. The FTB grants hardship status only for 3, 6, or 12 months at a time, and it must be renewed before it expires.
Evaluation
Deciding whether a hold, a plan, or an offer fits your situation.
Who qualifies
A hold is granted when the agency’s own expense standards show that your necessary living expenses equal or exceed your income, so that any payment would cause hardship. Retirees on Social Security, people out of work, and people whose health limits their earnings are the typical candidates. Assets matter too. Equity the agency believes you could borrow against or sell weighs against a hold.
The clock
The IRS generally has ten years from assessment to collect. CNC status does not pause that period. When the years run out, the remaining balance is written off. For a taxpayer whose debt is already several years old, a hold can be the route to owing nothing without ever filing an offer.
The FTB’s period is twenty years, and a hardship hold does not pause it either. The events that do pause it are set by statute: bankruptcy, a pending payment plan application, pending litigation, and a few others. Until the end of 2026 the FTB has treated later additions to the account, such as penalties and collection fees, as restarting its clock, so FTB balances have rarely expired on their own. A law passed in September 2026 ends that practice on January 1, 2027, and applies to existing balances. We check the collection dates for every year, with both agencies, before recommending anything.
Hold versus offer
An offer in compromise ends the debt sooner but requires a payment and five years of perfect compliance. A hold costs nothing now but leaves the debt in place, growing, until it expires or your circumstances change. Which is better depends on the balance, the time left, your age and health, and whether you can raise any lump sum at all. Our offer in compromise guide covers the other side of that comparison.
Compliance
Filing what is missing, because no hold is granted on an account with unfiled returns.
Both agencies require every past-due return to be filed before they will consider hardship status. For a taxpayer with little income, filing is often good news: the agency’s estimated assessments for unfiled years usually assume far more income than was actually earned, and the correct returns reduce the balance. Going forward, withholding or estimated payments must cover the current year, because a new balance can end the hold.
The Financial Statement
Documenting that there is nothing to collect.
What the agency asks for
The IRS uses a collection information statement (Form 433-A, or the shorter Form 433-F) listing income, expenses, assets, and debts, with pay stubs, benefit letters, bank statements, and bills attached. The FTB has its own financial statement (Form FTB 3561C) and asks for similar support. The IRS will take the information by mail or, in many cases, over the phone. Based on our experience and the IRS’s current processing times, we decide in each case which route will get the hold in place faster and more reliably.
The expense standards
The agency measures your expenses against its published standards for food, housing, utilities, transportation, and health care. Expenses above the standard are allowed only when they are necessary and documented, such as medical costs or the care of a dependent.
This is where we see taxpayers who file on their own make the costliest mistake: listing expenses that will certainly be disallowed, such as credit card payments, private school tuition, or support for adult children. Those items are struck out, the statement loses credibility, and the agency may then conclude that there is room to pay after all.
We prepare the statement knowing which items will be questioned and attach the proof in advance.
Assets
A paid-off vehicle, equity in a home, or a retirement account will be raised. Each has an answer: the vehicle is needed for work or medical care, the home equity cannot be borrowed against on your income, the retirement account is the only future income. The answer has to be in the file, not offered later.
The Request
Obtaining the status and getting an existing levy released.
The IRS
The request is made by phone to the collection function or in writing to an assigned revenue officer, with the financial statement. When the IRS agrees, it codes the account as CNC and releases any wage levy or bank levy in place. For balances above its threshold the IRS will usually file a notice of federal tax lien at the same time, and we discuss that trade-off before the request is made.
The FTB
The FTB evaluates hardship on its own form and its own standards, and it is generally less willing than the IRS to leave an account on hold for long. An approved hardship finding is one of the two things, along with bankruptcy, that will stop an FTB wage garnishment entirely. Outside of hardship the FTB modifies garnishments rather than releasing them. The finding also suspends other collection for 3, 6, or 12 months. Before that period ends, the status must be renewed with an updated financial statement, or collection resumes.
Levies already in place
When a paycheck or bank account has already been taken, the levy release is the first thing we ask for, and the hardship request is the basis for it. Both agencies can release a levy quickly once they accept that it is causing hardship, and a release can usually be sent directly to the employer or bank.
On Hold
Keeping the status, and knowing when it ends.
Reviews
The IRS checks the income reported on each year’s return against the level at which it placed the account on hold. If income rises above that level, the IRS sends a notice and asks for a new financial statement, and collection can resume. An FTB hardship status lasts 3, 6, or 12 months. As the period ends, the FTB usually sends a letter requesting updated financial information, and the status is renewed on the strength of that response. Missing the letter, or its deadline, lets collection resume.
Your obligations
- File every return on time and pay the current year in full.
- Respond to any request for an updated financial statement by its deadline, and renew an FTB hardship status before it expires.
- Tell us when income or circumstances change, before the agency finds out from a return.
How it ends
A hold ends one of three ways. Your finances improve and a payment plan or an offer becomes the next step. The IRS collection period expires and the balance is written off. Or your situation becomes permanent, and the hold simply continues, renewed at each review, until the clock runs out or the debt can be discharged in bankruptcy.
IRS and FTB Holds Compared
| Topic | IRS CNC | FTB financial hardship |
|---|---|---|
| Basis | Published expense standards show no ability to pay. | The FTB’s review of its own financial statement. |
| Levies | Released; no new levies while in status. | Wage garnishment released on an approved hardship finding; collection suspended for 3, 6, or 12 months. |
| Liens | May be filed on larger balances. | May be recorded. |
| The clock | Ten-year collection period keeps running. | Twenty-year period keeps running. Through 2026 later penalties and fees could restart it; from January 1, 2027 they no longer do. |
| Review | When reported income rises above the hold level. | Expires after 3, 6, or 12 months; must be renewed with a new statement. |
What It Costs
A hardship request is a flat-fee engagement in most cases, quoted after we have seen the notices and the income picture. Neither agency charges a fee for placing an account on hold. If missing returns must be prepared first, that work is quoted separately.
- The most recent IRS and FTB notices, including any levy or garnishment notice
- A list of years for which returns have not been filed
- Proof of income: pay stubs, benefit award letters, or a profit-and-loss statement
- Three months of bank statements
- Your rent or mortgage statement, utility bills, insurance, and medical expenses
- Statements for any vehicle loan, retirement account, or other asset
Gregory Grigoryants is a California attorney (State Bar No. 286804) who has represented individuals, families, and business owners in bankruptcy, debt collection defense, and tax resolution matters for more than 13 years. He practices from offices in Sherman Oaks and Beverly Hills and speaks English and Russian.