My husband and I filed taxes jointly and included his daughter as a dependent, although she did not live with us more than 51% of the year. His mother tried to file taxes claiming the granddaughter and it was rejected saying someone else already claimed her. She said she was going to the IRS office to show proof that she had the right to claim her granddaughter. She told my husband she is going to "press charges" against whoever falsely claimed his daughter. He told her no, don't do that, we claimed her. So now she is saying "its out of my hands" and that she was going to tell the IRS that we fraudulently claimed his child. What is the worst that can happen? We agreed to give her 1/2 of our return. Although she has not been to the IRS and I know they cannot tell her who or when her granddaughter was filed as a dependent, she continues to threaten that we will go to prison over this. My understanding is that if she goes to the IRS, they will do an audit and we will have to repay the taxes and possibly face a fine. Not "go to prison" over approximately $1,200 we received extra from claiming the child. I am at my wits end over the crazy mother in law saying we are going to prison. Can someone please advise?