My sister has 3 children in which I help her take care of. I provide at least 50% of funding for the children yearly, due to financial reasons. Neither my sister nor her children live with me but I financially help during the entire year. Is it OK for me to claim one of the children on my income tax, as I provide for them throughout the entire year?
What will happen if I claim one of the children on my income tax?

Thanks.

Dawn:

Look at Table 3-1 on page 26 of IRS Pub 17.

Your nieces and nephews are NOT qualifying children for you, because they did not live with you for at least half of the year.

Your nieces and nephews clearly meet the criteria for being a qualifying relative to you in all aspects except one: The children CANNOT be the qualifying children of anyone else.

Based on what you have told me, they meet the test for being qualifying chidlren for your SISTER and therefore CANNOT be a qualifying relative for you.

Sorry, you cannot legally claim them as dependents.