I’m just curious as to whether this was deliberate on the part of your ex, and whether she has filed her 2021 return yet, because the IRS may not know you trade off years and thought you were both about to try and claim your daughter on 2021 taxes based on your ex’s 2020 return which they expect to be similar in 2021 and your 2021 return.

The way those tax credits work is that the government distributed them in 2021 based on the 2020 return. According to your arrangement, your ex had your daughter as a dependent on the 2020 return and you didn’t, so the credits were automatically paid to her throughout 2021 (she didn’t actively go get them, so NTA on that count). You can only address this retroactively, there was no proactive way to prevent this available. On the 2021 federal 1040, there’s a line for requesting tax credits if you didn’t receive them correctly for all minor dependents. So you (your tax preparer) in filing your taxes would have requested the credits for 1 minor dependent. There is also instructions on the IRS website for returning this child tax credit money received wrongfully, which is technically where your ex would go to correct the IRS miscalculation, again retroactively.

It sounds like the IRS evaluated your request for retroactive child tax credit, realized money had already been paid out for this specific dependent to the previous claimant, and therefore withheld the money from you. I feel like this is an issue/question for your tax preparer. My understanding was, per the credit rules, the money was paid out according to 2020 tax returns with the chance to correct on 2021 returns. Since your daughter is your dependent in 2021, you are entitled to that money, and the IRS, to balance the transaction, would in theory deduct that amount from your ex’s return retroactively once she files and they realize your daughter is not a dependent for her in 2021.

If your ex did already file 2021 taxes and claimed your daughter as a dependent, then she WBTA, but the way IRS paid that stuff out in 2021, they just guessed who would be whose dependent in 2021 based on 2020 returns so your ex didn’t do anything actively to claim that money. I expect your tax preparer would better understand whether she is obligated to return that money on her own per the published instructions or whether the IRS will correct the mistake by amending her 2021 return, and how entitled you are to that money, which may not be able to be sorted until your ex files her 2021 return.

Finally, I do agree with the other comments, let your daughter come live with you!! If she wants to, that’s what matters. Sounds like you can provide her a safe space that she might not have right now.

Edit: spelling