Butler will enter restricted free agency after reportedly turning down a four-year, $40 million offer from the Bulls in October.
As a restricted free agent, Butler will be able to sign an offer sheet with any team, but Chicago has the right of first refusal and can match any offer.
The report says that the Bulls are planning to take a "proactive approach" in negotiations with Butler.
The team expects to sign him to a max deal "before another team even gets involved to tempt him with an offer sheet," even if it requires paying the luxury tax, according to the report.
"Internally, the Bulls are planning to take a proactive approach to contract negotiations with Butler next July and secure the shooting guard for a long-term spot alongside Derrick Rose." [...]"They fully expect to sign Butler to a max deal next July before another team even gets involved to tempt him with an offer sheet, which the CBA says they can after the moratorium ends. They accept that the size of Butler’s contract will put the Bulls in position to pay the luxury tax, something Chairman Jerry Reinsdorf says he will do for a championship contender his team is."
Butler, 25, is in the midst of a breakout season.
Through 34 games, The 6-foot-7 small forward has averaged 21.4 points, 6.2 rebounds and 3.2 assists while posting a Player Efficiency Rating of 21.8 and maintaining his reputation as one of the league's top wing defenders.
In the latest All-Star voting returns, Butler ranked fifth among backcourt players in the Eastern Conference.
The Bulls are 25-12 and in fourth place in the Eastern Conference. They host the Milwaukee Bucks on Saturday.