Hi @AmyC,
thank you for this answer. However, in the meantime, I received contrary advice from another tax expert that provided the following justification:
No you don't owe any taxes. When you recharacterize a contribution plus earnings from Traditional to Roth, the earnings are treated as if they had been earned in the Roth account, not in the Traditional account. There is no tax on earnings in a Roth account.
See § 1.408A-5 Q3 & A3
https://www.law.cornell.edu/cfr/text/26/1.408A-5
Q-3. What is the effect of recharacterizing a contribution made to the FIRST IRA as a contribution made to the SECOND IRA?
A-3. The contribution that is being recharacterized as a contribution to the SECOND IRA is treated as having been originally contributed to the SECOND IRA on the same date and (in the case of a regular contribution) for the same taxable year that the contribution was made to the FIRST IRA. Thus, for example, no deduction would be allowed for a contribution to the FIRST IRA, and any net income transferred with the recharacterized contribution is treated as earned in the SECOND IRA, and not the FIRST IRA.
This is different than what would happen in the case of a coversion. In the case of a conversion, the earnings would be taxable. In the case of a recharacterization, they would not be.
