what do you use to document due diligence for a newborn

If you think they are shady enough to invent a kid for tax purposes, you could ask for a DNA test and hire a private investigator to follow them home.  Or you could just fire them.

If they are folks that you know aren't that shady, the birth certificate and Social Security card would work for me - CAGMC.

There is more of a problem when you're trying to document where a 3-year-old lived -- especially if it was with the grandparents.  

The grandparents took the kid to the doctor, but the insurance (Medicaid) was under the absent mother's name and the paperwork didn't show who actually showed up.  IRS also asked for school records.  Yeah, sure.  

We paid the $60 ticket to Tax Court, and the case was first assigned to an Appeals Officer 800 miles away.  Since the key evidence was the credibility of the taxpayers, we asked that it be transferred to a local office.  Request denied.  Well, OK, we'll just wait until it gets closer to trial date and the case is transferred to one of Chief Counsel's lawyers.  Never deal with a GS-12 when a GS-14 is standing by.

@joshuabarksatlcs tells us, "I heard some use their sheer arrogance."  Not sure who he meant, but it could apply to a lot of IRS employees.   After a local meeting, IRS dropped the case.