Please delete; it has been solved.

[Serendipity1]

Please delete

[SweetieJean]

You can always return the phone and ask the company to revoke the 1099-MISC.
This almost sounds like a scam. Did it come form overseas?

[Opus 17 · Accepted solution]

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. 

[Serendipity1]

Delete

[SweetieJean]

Go to Ebay completed sales.

[Opus 17]

Ebay might be ok, you might also look for "factory refurbished" phones of the same model on Amazon or your carrier web site.  If you sell it instead of keeping it, your sales price may be an accurate FMV as long as the sale was fair and well-advertised and you sold it to a stranger and not a relative or friend.  If it is never-used but has cosmetic damage, that might be a different value than a phone that was used for 6 months before being returned as defective or unwanted.  Ultimately the burden of proof is on you to show that the FMV is less than the contest sponsor claimed.

[fanfare]

pay the tax, and sell the phone on ebay as "new, but marred". You'll still come out ahead.