For example,

House sold for $200K

FMV at DOD:  $200K

Selling costs:  $16,000

On brother's return, report sale of $200K because that is what was erroneously reported to IRS and they don't want to go back to the people they hired and ask that it be done right. 

Report basis and expense of sale as $208K -- his actual basis of $100K; the proceeds that were paid to hs co-owner of $100K; and his half of the selling expenses.  Loss of $8K is allowed.