A ruling by the IRS will allow Citi to dodge a direct hit to tangible common equity while saving money on taxes.

A WaPo story today notes that the government’s promise to sell its stake in Citigroup’s common shares would have qualified as an “ownership change,” forcing the bank to reduce the value of its deferred tax assets.* But the IRS said not to worry about it…

I wrote about the issue last month, mentioning the potential problem of an “ownership change.”

This news is a good opportunity to update deferred tax asset figures, which Reuters’ Stephen Culp has arranged into the following nifty chart:

The chart is updated to include all the common equity that banks have estimated will be raised to repay TARP. It does NOT include ADDITIONAL DTAs that will be created as part of that TARP repayment.**

The problem with including deferred tax assets in capital is that DTAs are only useful when you make money, but the point of capital is to be there when you don’t.

Imagine declaring bankruptcy and asking the judge to let you pay off your credit card bills with tax loss carryforwards.

Luckily, bank regulators take account of this, sort of. The measures of capital that they look at (anything with “tier 1″ in the name) exclude most DTAs. So that’s good news.

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*For the really adventurous, here’s a slideshow explaining section 382 limitations for deferred tax assets that result from ownership changes.

**My understanding is that some banks are buying back TARP preferred at a premium to book value. This creates a loss for tax purposes, boosting DTAs. Citi also generates a DTA, I believe, by ending its loss-sharing agreement with the government.