If the value of the Roth IRA was $40,786 immediately prior to the $40,000 Roth conversion into this account (resulting in a value immediately after the conversion of $80,786) your adjusted opening balance is $80,786. With and adjusted closing balance of the Roth IRA of $81,162 immediately prior to the recharacterization distribution:
$81,162 / $80,786 = 1.00465427 or a gain of 0.465427%
The calculation listed in CFR 1.408-11 is simply a rearrangement of the above:
($81,612 - $80,786) / $80,786 = 0.465427%
0.465427% * $25,000 = $116.36 of gain attributable to the $25,000 being returned.
