2021 Ruling 2021-0904311R3 F - Butterfly Reorganization -- summary under Paragraph 186(1)(b)

On a butterfly transaction, Pt. IV tax circularity issues are avoided by having a year end for the transferee corporation (Newco) occur between Newco’s purchase for cancellation of its preferred shares held by the distributing corporation (DC) in consideration for a demand note, and DC’s purchase for cancellation its shares held by TC for a demand note (so that TC is subject to Pt. IV tax on the second transaction).