What do you want to do?
You are entitled to claim your niece as a dependent if she lived in your home more than half the nights of the year. If you claim your niece as a dependent, you will have to mail your tax return, since any e-file will get rejected as a duplicate dependent. Then, in about a 9-12 months, the IRS should start sending letters to all the duplicate dependent cases like yours, asking for proof of where the child actually lived. If you have better proof than your sibling, your sibling will lose the dependent claim and will have to pay back any tax benefits and credits with interest and possibly a penalty.
It may not be right, but do you want to put that on your sibling?
If yes (for whatever reason, life is complicated and I don't judge) then file your return by mail. Start gathering proof that the child lived in your home for those 8 months. Best proof is provided by authorities outside the home, like letters from doctors, the school district, school bus schedule, and so on that show the child was living with you. Text messages and emails from your sibling confirming the child lived with you instead of with them will also help.
