The financial institution that does the recharactorization must calculate the earnings/loss and move that amount to the Traditional IRA and issue a 1099-R with a code R in box 7.
The earnings/loss are based on the value of the entire Roth from the time of the contribution to the time of removal pro-rated to the amount of contribution.
Once a dollar is in an IRA it is the same as any other dollar and does not have it's own earnings or loss.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
