The IRS does not often, if ever allow any relief from trust fund taxes, even in these circumstances.
Many failing businesses attempt to meet creditor obligations, even loans received to make payroll obligations, before making the trust fund payments. However the IRS considers this to be willful neglect to pay trust fund taxes. AND your client would still be subject to TFRP.
the penalty is equal to the tax due, so barring a successful appeal and request for abatement of the penalty, you would still owe the amount due if penalties were assessed.
If the business in now in failure you have two primary basis of argument.
1. Seek relief to the extent the individuals might not be considered responsible officers. Or
2. Seek relief of the penalties based on the insolvency of the business.
3. IN very rare situations, the IRS has given relief of the employer contribution, but that generally occurs connected to a bankruptcy proceeding. There is generally no abatement of requirement to pay moneys collected from employees or due to employees behalf.
This field agents guide to this matter is provided for your benefit: http://www.irs.gov/irm/part8/ch17s01.html