It's fairly obvious the mother's name was not on the deed, if two people received half the proceeds each.  The issue is whether the mother was still beneficial owner of the house, even though she did not have legal title.  The sisters might want to make the case that they held it only as constructive trustees, and the sale should be reported by the mother, who may qualify for the primary-residence exclusion.  Having gone to great effort to avoid probate, it now depends on how much effort they want to make to avoid the tax collector.