Not only can you not claim the child because a court order cannot be transferred; you cannot claim the child because you do not meet the IRS rules for claiming a dependent.
If your daughter has no income, she has no reason to file a return. So the stepmother can legally claim the child, even though there is a court order saying somebody else can. That is, your daughter cannot file a return, just to keep the stepmother from claiming the child.
Furthermore, in the years your daughter does have income, and is claiming the child as a dependent, she cannot use the child to claim the Earned Income Credit or Head of Household filing status. This is because the child does not reside with her. In fact, the stepmother can claim those items.
There is a special rule in the case of divorced & separated (including never married) parents. When the non-custodial parent is claiming the child as a dependent/exemption/child tax credit; the custodial parent (the step mother is the custodial parent) is still allowed to claim the same child for Earned Income Credit, Head of Household filing status, and day care credit. This "splitting of the child" is not available to parents who lived together at any time during the last 6 months of the year; then only one of you can claim the child for any tax reasons. The tax benefits may not be split in any other manner.
Note in particular that the non-custodial parent can never claim the Earned Income Credit, Head of Household filing status or the day care credit, based on that child , even when the custodial parent (or a court order) has released the exemption to him.
