Declare the correct value on the Customs form?

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!

P.S. to the above part b. - I assumed that the port-of-entry agent noticed the LP is undervalued and may not notice the 'returned goods' box was checked.  This is reasonable because Tariffs and Fraud are higher-priority issues than 'returned goods'.

This scenario is more common than one may think (I worked in this field for several years).

Again, good luck with your decision.

Listen to those who know. This is returned goods, no duty, no fraud, I've done this exact thing when I've had upgrades done with my Canadian build equipment (US to Canada shipment).

If you list value as $50, how would that bring up red flag, this is  entirely different shipment than when album was shipped to you. Does customs have xray vision and photographic memory to recall this was originally a $1200 album!

And why would you have any morality problem with the $50 valuation, in essence there is no actual goods changing hands, so duty being charged twice for goods that didn't change hands, that's extortion.

As for being fearful of customs, where is the jail for customs cheats, $1200 is relatively nothing in the whole realm of goods going through customs. If caught the worst you'd suffer is hold on package, they determine value, you pay the duty they determined, package continues on it's way.

Like many others, I’m really curious what is the name of the album and what makes it a “Holy Grail” album for you?

+1 for curiousjim 

in fact, in general we know nothing about the actual problem with the LP, other than that it might be worth $1200 to a particular collector. By the way, valuing it at $1200 solely for the benefit that might accrue if it’s lost or damaged might equally be thought of as fraudulent by a determined moralist.