In as few words as possible, NOPE! Unless it is a primary home, the tax relief bill won't apply.
I would tell them that deed in lieu will still result in them having a lein placed on them for the difference that the property sells for and will still show as a foreclosure on their credit as far as the rating is concerned. A short sale is their best chance to not have that happen and avoid the dreaded word "foreclosure' on their credit. I just had a client that we sold 3 waterfront investment properties with, forgiving over 750K, all with bank of america I must add, (he he, tooting horn here). Even if the bank comes back and says no we wont forgive the debt...they sellers still should take it, work out .25 on the dollar down the road if possible or place the debt in bankruptcy...which is still better than having that "foreclosure" marked on their credit!
With all due respect, I would like to take this moment to remind everyone that we, as Realtors, cannot give legal or tax advice without crossing a line. First and foremost, the best advice you can give your client on these issues is to consult an attorney and/or a tax professional with these questions. Since we are exposed to this information on a regular basis, it is difficult not to give this advice but the liability you will incur if you do so is not worth it.