Follow up question on Form 8606. As noted previously, I received a 1099-R for $69 (included in Box 1 and 2a). This $69 represents the gain on investment I held between the time I made a $5,500 non-deductible IRA contribution, and the time I was refunded the $5,500 non-deductible IRA contribution. Specifically, in 2017, I contributed $5,500 and then later changed my mind in 2017 and asked that the $5,500 be refunded. I was ultimately refunded $5,569 ($5,500 + $69 gain). I understand I owe taxes, and any penalties, on the $69 (or at least I think I understand).
Form 8606 lines 4 - 14 is performing a pro-rata calculation on the $69, and ultimately reducing my basis in line 12 by $2 (line 15c is indicating a taxable amount of $67). My question is why any portion of the $69 would be reducing my basis at all? Seems to me I should just be paying taxes and any penalties, on the entire $69 without touching my basis?
