If the taxpayer is under the age of 59½, they pay the 10% early withdrawal penalty on just the earnings portion of the excess contribution. They pay income tax on the earnings. They avoided the 6% penalty, since they pulled the money out in time. That is a moot point. There should be a form 1099-R that shows this was early distribution (codes 8 and J, most likely). There should be a form 5498 for the penalty.

Prior basis doesn't come into play.