from what i know its supposed to be a .dds,which would mean that if you are making it in Photoshop you'll need a plugin for it.
The trick I found out was when i edit some of FPS Creators muzzles the transparency is messed up , but if I start in photoshop a blank file and remove the background (make it transparent) and then when saving use "DXT5 ARGB 8 bpp | interpolated alpha" option for a pallette it works.
Hope this helps
Да живее България!