Substance over form.  If the parents were equitable owners of 100% of the house, they can't have their cake and eat it too.  If they were deducting the interest and taxes, they must have been making all of the mortgage payments (or were they just cheating, and want to be honest now?).  Who paid the utilities, upkeep and maintenance?  Who else was living there?  

I wouldn't assume 50/50 if there are three names on the deed.  State law might  determine whether ownership was actually 67/33, for example.  Was there any agreement when the house was purchased?  And perhaps most importantly, who got the money from the sale?