Madame Katherine required no tea leaves to know IRS agents would come by some day. During eight years, she and her husband, Frank, made many large gifts to their son and his two children: cash, securities, a Rolls Royce, two Lamborghinis, a Mercedes, two Cadillacs, two Porsches, a Ferrari, a Corvette. Also, they paid $10,000 for one daughter's wedding and $7,000 to a private detective to hide their daughter Janie and her children from her estranged husband. The couple didn't file gift tax returns and filed income tax returns for only five of the eight years.

Soon after starting the audit, the agency realized the Johnsons had no records. So it reconstructed the couple's income based on what they paid for purchases, living expenses and gifts.

Katherine told the court the agents had erroneously included $750,000 as income. It wasn't. Her father gave this to her. She added that her father, a coppersmith and welder, and her mother, a fortuneteller, had lived frugally and amassed this amount over a lifetime.

She told two different stories about why she got the money: One, to keep a relative from taking her father's money while his leg was amputated, Katherine and her brother took the contents of her parent's safe deposit box.

In the other story, Katherine's father lived with her and her husband for six years. He gave them the money, in gratitude. In both stories she said she used some money to build a home, gave some to her children and had some stolen.

The court was not entranced by the gypsy's tale. And her parents were no longer alive to testify. Evidence showed that her parents could not have accumulated anywhere near $750,000. And if they had, the court noted, gypsy custom dictates they give it to their oldest son, not Katherine. It described her testimony as "incredible, implausible and biased."

The court said, because of their tax underpayments for eight years, Katherine and Frank owed taxes, penalties and interest of $1.9 million. But the couple had no money. After giving their fortune away, they were insolvent. So the IRS wanted the couple's son, Larry, and his two children to pay up. The three argued the gifts were made for his parents personal gratification and estate planning - not to hinder tax collections.

The court disagreed, saying Larry's parents made the gifts to defraud the IRS. So, the son and the two grandchildren, having received gifts valued at more than the amount payable, owed $1.9 million.(more at IRS Collections)

THE MORAL: It doesn't take a crystal ball to know the IRS will find hidden money.