because she would be considered my wife's sister through the foster system?
You seem to be creating a "foster niece" category, which does not exist.
A foster child is different from other children categories. A natural born child, adopted child or step child retains that category for ever, even if family changes occur. Not so foster children. A foster child is your foster child until they are someone else's foster child or they reach the age of emancipation. For example, a foster child could be placed with family A in 2012, Family B in 2013, Family C in 2014 and emancipated out of the foster care system in 2015. In 2015 they are not the foster child of family A, B and C, they are no ones foster child. For that reason, I think you will have a difficult time supporting a "foster niece" category in claiming a dependent unless you can find a specific Tax Court case or IRS ruling confirming it.
