How can someone else claim the child that lived with us and we supported since he was born in 2014? The person who claimed this child has been overseas for almost 2years.

[frankie74-]

Mitchell White claimed Derek.  He has not lived in the USA at least 2 years

[DoninGA]

There is nothing preventing someone from claiming a dependent on their tax return.  This does not prevent you from claiming the same dependent on your tax return.
The IRS will determine who should have the personal exemption for the dependent once they receive two or more tax returns claiming the same dependent's exemption.
The party that loses the investigation is required to pay back any tax refund plus penalties and interest.

[frankie74-]

I thought the dependent or dependents had to live with and (or) had to be supported by the person or persons.  We sent certified letters in sign and agreed upon  by the parents.  My daughter and her son have lived with  us since he was born. His father doesn't support them. He is  in Japan

[DoninGA]

One of the rules for claiming a dependent child under the age of 19 are that the child has to live in the home for over one-half of the year.  However, if someone else is claiming the child incorrectly then there is nothing to prevent that person from filing a tax return improperly claiming that child as a dependent.

To be a Qualifying Child -

1. The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them.
2. The child must be (a) under age 19 at the end of the year, (b) under age 24 at the end of the year and a full-time student or (c) any age and permanently and totally disabled.
3. The child must have lived with you for more than half of the year. Temporary absences while away at college are considered living with you.
4. The child must not have provided more than half of his or her own support for the year.
5. If the child meets the rules to be a qualifying child of more than one person, you must be the person entitled to claim the child as a qualifying child.
6. The child must be a U.S. citizen or U.S., Canada or Mexico resident for some portion of the year.
7. The child must be younger than you unless disabled.

[Hal_Al]

Dependent rules are complicated, but who the child lives with is the most important part of the rules. Support is less important.
Anybody can "get away" with claiming a child dependent, they are not entitled to. It is impossible  to prevent them from doing it. The way to "undo" it is very simple: the person who is entitled to claim the child (whether you or your daughter) files a return claiming the child. The IRS will sort it out. If you (or she) filed a return without the child on it; you can now file an amended return and claim the child

[Carl]

The point here is this. Someone very well may have claimed the child as a dependent illegally. There is absolutely nothing and no way physically possible to prevent it. So if you are the one entitled to claim them, go ahead and do so. When the IRS receives your tax return and becomes aware the child has been claimed on two tax returns now, they will contact both claimants (by mail) asking for proof that you have the right to claim them. Since the other claimant is overseas and your child is not, simply producing a passport (if the dependent has one) or proof that the child has no passport (assuming the child is a U.S. citizen) will most likely suffice. But in the letter you will receive from the IRS, they will provide instructions on what you need to do to prove your right to claim the dependent.

[Opus 17]

A person who does not live with the child in their home can rarely legally claim them as a dependent, regardless of custody or divorce agreements.

A rare exception would be a divorce or custody order filed in 2008 or earlier, that says that the non-custodial parent can claim the child as a dependent in certain years.  The custody order must have specific language and the taxpayer must attach a copy of the order to their tax return and mail it in.  (Even then, it is not an unrestricted claim.  The parent can claim the child as a dependent for the dependent exemption and the child tax credit, but never the child and dependent care credit, head of household, EIC or college tuition benefits.  Those benefits always stay with the relative who has custody.)

Assuming this person is not entitled to claim the child as a dependent, the IRS really has no way of knowing that unless a duplicate claim is filed by someone else.  In that case the IRS will send a letter saying "are you sure you didn't make a mistake" and if both taxpayers still insist that they are entitled to claim the same child, the IRS will ask for further proof of where the child actually lived for the year.  Proof from outside authorities is best, like letters to you from doctors, the public schools, etc. about the child.

If someone improperly claims your child as a dependent it may prevent you from e-filing, but you can print your return and mail it in.  The IRS will eventually start the investigation as mentioned above.

[Opus 17]

If you are parent, grandparent, aunt or uncle, sibling, adopted parent, or foster parent, then the child is your dependent if they live with you more than half the year, and they meet the age and support tests.

If you are not related and this is not a legal foster placement but you have been caring for the child while the parent is away, you can claim them if the child was a member of your household for the entire year and you provided more than half their support, but some other dependent benefits are not allowed.  

For very complicated situations there are tiebreaker rules, we can help you understand your situation if you provide more details.