You owe income tax on the fair market value of the prize. If you believe the FMV is over-stated on the 1099-MISC, what you need to do NOW is gather proof that supports the value you claim. Document the condition, with photos if you can. Get some listings of the same item in similar condition (slightly used but damaged, returned, factory refurbished, etc.)
Then, send a letter to the contest sponsor asking them to issue a corrected 1099-MISC, with copies of your documentation.
If they do, great.
Assuming they don't change the 1099-MISC, then at tax time, you will report the 1099-MISC but using the lower value. You won't e-file. Instead, file by mail, and attach to your return a copy of the 1099-MISC and a written statement of why you are reporting a lower value (and that you requested a corrected 1099 and they refused). Don't send all the other proofs with your tax return, just a simple one-page statement. Keep the proofs in case the IRS contacts you later and wants to see it.
