All a hacker needs is your Social Security number. With it, they can file a phony tax return with a made-up W-2 form that shows you are getting a big refund. When the IRS gets the return it processes it, sending out the refund check to the bad guy. The theft isn't discovered until you get around to filing your real return.

Easy money

To the hacker it's easy money. If he has somehow gotten his hands on your actual W-2, you may have a very difficult time getting your money back. In any case, the U.S. taxpayers end up getting victimized as well.

The IRS has stepped up efforts in recent years on finding and prosecuting these specialized identity thieves. In Fiscal Year 2013 the agency began nearly 1,500 criminal investigations related to tax return identity theft, a 66% increase over the previous year. It's better, of course, to stop identity theft before it happens.

“The IRS has taken numerous steps to combat identity theft and protect taxpayers,” the agency said in a statement. “We are continually looking at ways to increase data security and protect taxpayers' identities with assistance from our Identity Protection Specialized Unit. Identity theft cases are among the most complex ones we handle.”

Take action

If you have reason to believe that someone has stolen your personal information you need to take action. For example, you may receive a letter from the IRS stating or learn from a tax professional that you filed more than one tax return, or that someone has already filed a return using your information. You may also learn that you have a balance due, refund offset or have had collection actions taken against you for a year you did not file.

Your identity may also have been stolen if you receive a notification of wages form an employer you have not worked for. If you receive such a letter from the IRS and you suspect your identity has been stolen, respond immediately to the name, address, phone number or fax listed on the IRS letter. Better yet, contact the IRS to determine if the letter is a legitimate IRS letter.

Another tip-off is when you learn that someone is using your Social Security number to seek employment, or for some other purpose not connected to your activities.

People to call

When you find out you have been a victim of identity theft, or suspect that you have been, there is a long list of people to call. First, contact the three credit reporting agencies to place a fraud alert on your credit files. Next, cancel all your credit cards. If someone is using your Social Security number, contact the Social Security Administration.

The IRS asks that you also place it on the list of people to call. Once you do it will place a hold on your account so that the thief will be unable to file a bogus return.

For other identity theft protection tips, check out the IRS video below: