Earlier this week, one of my colleagues sat down at her computer to file her income tax return electronically using TurboTax. Twice, her return was rejected. The message she got back was startling: the IRS already had a tax return filed under her Social Security number.

How could this be? She hadn't filed yet.

Panicked, she called the Social Security Administration to make sure her name matched her Social Security number. It did. Then she called the IRS. A representative pulled up the tax return filed under her name and Social Security number, and asked to verify the address. It wasn't hers.

A thief had filed a fraudulent tax return under her name, and would likely get her $1,000 refund, not to mention her $600 economic stimulus payment. Thus began her tedious task of clearing her name: filing a police report, filing a complaint with the Federal Trade Commission, putting a fraud alert on her credit report and mailing in her tax return with copies of her driver's license, police report and other documents to prove her identity. (Read here for steps you should take if you're a victim of identity theft).

More and more thieves are filing tax returns under other people's names to get their refunds. In fact, complaints about this type of theft jumped 579 percent, from 3,000 to more than 20,000, between 2002 and 2007, according to an audit released this week by the Treasury Inspector General for Tax Administration. Not only are fraudulent returns on the rise, so are cases where thieves use another person's Social Security number to gain employment. Because employers must report income to the IRS, victims are stuck with those tax obligations.

I couldn't get hard numbers from the Seattle office of the IRS, but my colleague talked to someone in the Seattle police fraud unit who told her that they were getting three complaints a week.

Despite the growing problems, the audit found that the IRS doesn't do enough to prevent the problem or prosecute those who commit these crimes. It found:

No action is taken to stop someone from continuing to commit employment-related identity theft using another person's SSN and name. The IRS does not actively try to identify or stop an individual from committing identity theft.

Of 2,720 prosecution recommendations made by the IRS Criminal Investigation Division in 2006, only 55 involved identity theft, according to the audit.

In a response to the audit, the IRS agreed that it could do more, but it noted it does a better job now of identifying returns that are part of refund crime. It saw a 589 percent increase in such flagged cases from 2002 to 2007. It also noted it can't by law report wage information to third parties, so it cannot notify employers when wage information isn't accurate on a tax return.

Douglas Shulman, who took over as IRS commissioner three weeks ago, said in this AP story the tax agency will have specially trained people on call to help victims of identity theft by this fall. He pledged that people with a problem will get through to a person who can help them.

Read the full audit here.