Spurs and Fonseca had verbally agreed on terms for a two-year contract, but talks between the two parties broke down on Thursday.
The contract was allegedly scuppered by financial issues, according to Sky Italia.
Spurs' new managing director of football, Fabio Paratici, is a big fan of Gattuso and thinks he'd be a better fit for the club.
This comes after a disagreement with the Serie A club about which players should be signed this summer.
Paratici had attempted to employ Antonio Conte, the former Inter Milan head coach, but talks had broken down earlier in June.
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