I appreciate the attempts at help. It looks like I did a lousy job of explaining the situation, so here is more information.
The problem stems from the Taxable IRA Distribution Worksheet.
1. Enter all contributions made to your traditional IRA for 2011, whether or not deductible. Include contributions made during 2012 for 2011, but not rollover contributions properly rolled over into the IRAs. $5,000.
2. Enter the basis in your traditional IRA(s) as of 12/31/2010. $5,000.
3. Add lines 1 and 2. $10,000.
4. Enter the value of all of your traditional IRA(s) as of 12/31/2011 (including any outstanding rollovers from traditional IRAs to other traditional IRAs). $221,780.
5. Enter your distributions from traditional, SEP, and SIMPLE IRAs in 2011. Do not include rollovers conversions to a Roth IRA, certain returned contributions, or recharacterizations of traditional or SEP IRAs contributions. $0.
6. Enter the net amount you converted from traditional, SEP, and SIMPLE IRAs to Roth IRAs in 2011. Do not include any portion of an amount converted that you later recharacterized. $117,715.
7. Add lines 4, 5, and 6. $339,495.
8. Divide line 3 by line 7. Enter the result as a decimal. 0.02946.
9. Nontaxable portion of the amount converted to Roth IRAs. Multiply line 6 by line 8. $3,468.
The problem is with the inclusion of the $5,000 contribution for 2011 on Line 1. That money was contributed in January of 2012, which was after I did the conversion. I don't think it should be included in the calculation for proportionality because it wasn't there at the time the conversion occurred. By strictly following the worksheet, it was added in as though it was in the conversion, but it actually wasn't. As a result, it reduced my pre-tax basis in my IRAs.
Now that I think about it, it also reduced the amount that I paid taxes on, so I guess maybe it washes out. Perhaps the lesson is that if you make an IRA contribution after a conversion but in the same tax year, that later contribution is still included in the proportionality calculation. If anyone is still with me at this point, does that sound right?