Originally Posted by mahasamatman
For the IRS, it doesn't matter how you value something - it's only the market that matters. I believe that in order to show a different valuation, you need to demonstrate "fair market value" by showing how much it should cost to purchase the item on the open market. Since the only legal market I'm aware of for purchasing AA miles is directly from AA, and they charge $625 for 25,000 miles, this is most likely how they arrived at their value.
Congratulations on winning, and good luck mitigating your tax liability.
It would be interesting to see someone take this up with the IRS someday. If they want to deal in FMV, then what is the FMV of something you can't sell? Seems to me it would be zero. #1, the T&C of AA says you can't sell them. #2, if you do sell them, AA no longer will accept them as valid miles - thus no value.