@fanfare wrote:
"convert the entire traditional IRA balance"
This is a taxpayer choice and has nothing to do with a backdoor conversion, so please don't call it that.
taxpayer could recharacterize and then convert $300 from traditional to Roth.
Tax would be on some amount less than $300.
(that still puts you in the situation of having a basis going forward).
The backdoor Roth, when available, is a tax-free event, and leaves no prior years basis.
Step 1 is to recharacterize the disallowed Roth contribution to an allowable, non-deductible traditional IRA. This creates a partial basis in the IRA.
Step 2 would be to convert part or all of the traditional IRA to a Roth. If the taxpayer converts part of the IRA, then it is partly taxable (pro-rated to the amount of after-tax basis in the traditional IRA) and the remaining traditional IRA balance retains a partial after-tax basis. This is messy and doesn't really work for most people.
However, if the taxpayer converts the entire traditional IRA balance to a Roth, they will pay income tax on the pre-tax part of the account but pay no tax on the after-tax part of the account (that was recharacterized from a Roth). This is not a true "backdoor Roth" but it is at least a partial backdoor Roth, since it gets the original disallowed Roth contribution back into a Roth IRA. (And since there is no such thing as a "backdoor Roth conversion" in the tax code—its a loophole created by the application of other laws—I don't see why we have to nitpick over the terminology.)
More importantly, if the taxpayer zeroes out their traditional IRA in 2021 by doing a Roth conversion and paying the tax, they can do true "backdoor Roth" contributions in every future year. This is my main point that you keep overlooking.
Depending on their income, employment, and other tax situations, this might ultimately benefit them in two ways: 1, never paying tax on future withdrawals, and 2, they will be able to contribute maximally to both a Roth IRA and their workplace plan without penalties.
