There are two types of dependents, "Qualifying Children"(QC) and standard ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit and essentially no support test for a QC but there is an age limit. All that really matters is who the kid lives with. Only a QC qualifies a taxpayer for the Earned Income Credit and the Child Tax Credit.
Her brother cannot legally claim the child, as either a Qualifying child or a qualifying relative. To do so would be tax fraud. But the wishywashy defintion of a QC has many people believing that any close relative can claim a child. The rule is any close relative he lives with (and even then there are some technicalities).
