This post is by Kelly Phillips Erb at Forbes.com.

Do you know where your refund is?

It’s possible that it’s in someone else’s mailbox. Thieves are becoming more sophisticated these days with IRS posting “identity theft” and “phishing” at the top of its list of the "Dirty Dozen Tax Scams for 2012."

Increasingly, criminals are using information gleaned from stolen financial forms, internet scams and phishing schemes both to empty bank accounts and to file fraudulent tax returns in order to snag bogus refunds.

During tax season, these efforts are on the rise with the IRS reporting (.pdf file) that, as of March 9, it had stopped 215,000 questionable returns with $1.15 billion in claimed refunds from filters specifically targeting refund fraud.

And it’s not just small-time crooks and thieves: some so-called "boiler rooms" are operating on a massive scale.  (Post continues below video.)

You need to take steps to protect yourself and your valuable financial information. But even the most diligent taxpayers can’t always stop the professionals.

That’s why the IRS is considering taking the bold steps of sharing information with police agencies in hopes of stem the tide of tax refund fraud and identity theft. The effort will begin in Tampa, Fla.

Fraud is especially rampant in Tampa, with the damage from stolen Social Security numbers and other financial information topping $130 million in 2011 alone. Det. Sal Augeri of the Tampa Police Department emphasized the size of the problem in his testimony (.pdf file) to the Senate Finance Committee, saying: "The tax refund fraud scams mirrors the spread of crack cocaine here in Tampa."

That’s why, in what’s considered a groundbreaking move, the IRS is considering a pilot program in Tampa that would allow the IRS to work with the police in instances of suspected fraud. While such an effort seems like a no-brainer, it may actually be illegal under current law. Augeri stressed this in his testimony: "As you are aware, tax code prevents the IRS from sharing information with local law enforcement."

Tax data was public record

Believe it or not, until 1977, taxpayer information was considered public record and the rules regarding disclosure were left to the executive branch. As concerns rose about the dissemination of taxpayer information for nontax purposes, Congress took matters into its hands in 1976 and revised Section 6103 of the Tax Code to eliminate executive discretion.

Now, Section 6103 limits disclosure of taxpayer information except under specific circumstances. Disclosure is authorized in response to requests from federal agencies for use in criminal investigations. There appears to be no corresponding exception that allows for the release of identity theft information to state or local agencies, leading Steven Miller of the IRS to note in testimony, "We are limited in what we can supply to local law enforcement."

Augeri echoed this frustration, pointing to a targeted effort in September 2011 that led to 47 arrests for identity theft and credit card fraud. In addition to the arrests, several cars were seized, including a Mercedes, Jaguar, BMW and a Bentley Rolls Royce. Despite the arrests and seizures, there have been no federal indictments for tax fraud. More disturbing, adds Augeri, is that none of those arrested appeared to have slowed their tax fraud activities.

Sen. Bill Nelson, D-Fla.,  wants to change that. Nelson held a hearing at the Senate Finance Committee to tout his proposed legislation, the Identity Theft and Tax Fraud Prevention Act, to allow, among other things, more sharing of taxpayer information among the IRS and local law enforcement agencies.

Seizing on a point made by Augeri, Nelson said about the increasing problem of identity theft, "People describe it as cocaine on a card." His legislation would, he added, protect taxpayers from an ID theft crime wave.

Would police share tax returns?

Some worry, however, that changing the safeguards currently in place might do more harm than good. Nina Olson, the National Taxpayer Advocate, cautioned (.pdf file) that once local law enforcement has access to taxpayers’ returns, they could be shared with other people.

She suggested that if "we place a greater value on protecting taxpayers against identity theft and the Treasury against fraudulent refund claims, we may need to make a substantial shift in the way the IRS does business. Specifically, we may need to ask all taxpayers to wait longer to receive their tax refunds, or we may need to increase IRS staffing significantly."

Considering that Congress just slashed the IRS budget, it's likely that that last suggestion can be ruled out. And forcing taxpayers to wait longer for refunds? One can imagine the backlash.

Realistically, some level of cooperation between local law enforcement agencies and IRS may be needed to curb identity theft and tax fraud, giving up what was until now sacrosanct taxpayer privacy in order to protect taxpayers. Is it worth it?

More from Forbes.com and MSN Money:

• How to pick a financial adviser
• The 20 new rules of money
• Quick fixes for financial faux pas
• IRS reviewing 2 million returns for fraud
• New IRS tax-preparer rules draw opposition
• Whistle-blowers get no respect from IRS