Citi is motivated to report a high value on the 1099s for the deposit accounts (where the miles are the same as interest) in order to avoid IRS penalties for undervaluing the miles awarded as interest.
I haven't looked at the Code and Regulations on this issue recently, but I doubt the tax code penalizes payors for overvaluing the property paid as interest like it would if the payor undervalued the property. So Citi fulfills its obligations under the 1099 rules by submitting an outlandishly high retail value for something it bought from AA for probably a penny a mile or so. And if the taxpayer (Citi's customer) disputes the value, then the customer is free to argue with the IRS over the valuation of the miles, the same way you're free to argue with the IRS over any other non-cash income that is reported to the IRS.
If you win a new car in a contest, does your 1099 show the sticker price, the invoice price or some other price? Most contest sponsors send the IRS and the winners 1099s that show the approximate retail value (ARV) of the prize and leave the argument over valuation to the winner and the IRS.
Again, you're free to argue valuation with the IRS, but Citi couldn't care less about your disagreement over the value of the miles. It's satisfied its tax obligation.
In light of all this, bonus miles from credit card issuance looks like a much better deal since Citi does not report those miles as income (as they are a rebate as discussed above).