Declare the correct value on the Customs form?

Probably best not to make a habit of it.  The album reveal is worth a thread of its own. 

the full refund is assured via PayPal and my VISA (based on prior experience alas). 

I took that advice and still lost a $350 @sph part sent to Malaysia. With no recompense. 

certain foreign countries NOT to purchase insurance or send their item Registered

Where is there any potential for “fraud”? It’s a friggin’ record, for goodness sake. The person who may have committed fraud is the seller. We’re not talking about diamonds or precious metals or any other commodity that has a commonly understood value scale. If the thing is not what the seller said it was, it probably isn’t even worth $50. And again, you’re returning an already used item to its place of origin. On a US Customs form, that is a category for which there is no charge.

I live in the EU and can testify that any import shipment from the countries outside will be charged with so called 'Vat' tax (around 20 percent, depending of country) and that tax will be charged on cost of goods and cost of transport (shipping) together. To import something  and not pay import tax (like a gear that you have send for repair) you need to make such papers with official fast forwarder (that also cost, usually from 100usd and above). So, the mentioned seller is probably just trying to avoid more potential costs, since record, if declared for 1200usd will be taxed for some 25 percent or more, when received. It is possible to declare a lesser value and still have it insured with carrier for bigger amount, at least from EU side

As many have stated:

a. No one pays a Customs "(Country Name} Return Goods" duty on this item.  So, this is NOT a Customs Duty ($) issue.  

b. If you lower the value of this item from $1200 to $50, you may red-flag this shipment at the port-of-entry.  Why?  Customs agencies collect tariffs, and customs agents are trained to spot items that are dramatically undervalued.  If your box is flagged, this alone could hold-up the shipment for months.  

c. If you lower the value of this item from $1200 to $50, the world now views it as a $50 item (it is plausible that something happened to cause the value to significantly drop while it was in your possession). Consequently - if the LP is lost or damaged, you are likely to receive $50 in return. 

Why? On a really bad day, you may need to send a PDF of the shipping docs to VISA and PayPal, who will not reimburse you above $50, because YOU lowered the items value - leaving you in the position of having lied about the value of the (now $50) LP OR forging the shipping documents - bad either way.  

c. On the other hand, if you declare the LP to be worth $1200, you can track it until it leaves the U.S.  If it is lost or stolen after it leaves the U.S., it is an issue for the seller.  Be certain to keep your shipping/tracking documents.   

Be certain to photo-document the reason why the LP is not as advertised. I would also photo-document packaging the LP for shipment (to avoid arguments that shipping-damage was caused by poor packing). 

Because the seller misrepresented the item, I suspect that most buyers would be fine forcing the seller assuming responsibility for the issue.

Best of luck with your decision!