Q. Can I use form 8332 to revoke a Grandparent who claimed my children last year?
A. No. As Critter-3 said, that form is only for different circumstances.
All you can and should do is file your tax return appropriately. Depending oh her income, your mother-in-law may even get to keep some of the advance payment, even though you will be getting the full child tax credit. In some circumstances duplicate payments are allowed. But she shouldn't count on it. Some (or all) may have to be repaid.
You should let her know you'll be filing, so she doesn't try. You are the only one allowed to claim the child (it is not optional), based on where the child live in 2021.
If someone else claims your child inappropriately, and if they file first, your return will be rejected if e-filed. You would then need to file a return on paper, claiming the child as appropriate. The IRS will process your return and send you your refund, in the normal time. Shortly (up to a year) thereafter, you'll receive a letter from the IRS, stating that your child was claimed on another return. It will tell you that if you made a mistake to file an amended return and if you didn't make a mistake to do nothing. The other party will get the same letter you did. If one of you doesn't file an amended return, unclaiming the child, the next letter, from the IRS, will require you to provide proof. Be sure to reply in a timely manner.
Winner gets the tax benefits; loser gets to pay the IRS back with penalties and interest.
