Declare the correct value on the Customs form?

The seller should not be paying any import duty on an item that was shipped out and returned.  He isn't importing anything, the item started in his country and is ending therre.  Duty should not apply.    I shipped a streamer to europe for upgrade and it took a while but I eventually figured out a code that didn’t charge either of us import duties.

In your case, it sounds like the seller is just trying to minimize the import duty that he is wrongly charged so I would support that. Better answer would be to find the harmonized tariff code for "returned goods" or something similar so that he is not charged anything.

Jerry

Totally agree with the logic carlsbad2 is stating. There is a "return for repair" box right on the customs form one fills out with the couriers, I would fill that out. But here is the issue- the album ends up snapped in half at the consignee, it is only insured for $50 (you can't insure for a higher amount then the declared value). Now the fight goes on for who is on the hook for the 1200 paid. This assumes the carrier will even entertain paying for damaged items. Last I enquired they only would cover loss, not damage, unless it was original packaging from the manufacturer, which seems odd when you are talking about an album. I would still do it (mark it at $50) with the understanding that the original shipper is on the hook. 

Wait, did you say $1200 for one album?! 

Now, or ever, is no time to engage in fraud.

I do not profess to know the intricacies of US customs costs, but if the shipper charged you $1,200 for something that was "not as described", I would not trust him to do what's right for you.

Of course if it is "not as described", then perhaps $50 is an accurate value.