In tax circles, the fair market value is usually the price that a knowledgeable seller would sell to a knowledgeable buyer, neither being under any compulsion to participate. However, in determining the value, items which cannot be freely transferred are often subject to a lack of marketability discount (which would seem to be relevant in this situation).

Exactly what you agreed to with respect to the Terms and Conditions would be a legal matter. If I were challenging the value, I would go with the "TurboTax approach" of reporting the amount reported on the 1099 on one line and a negative adjustment with an explanation on a different line.

IIRC, Consumer Reports Travel Letter (now out of print) used to suggest a range of value for points. CR is accepted by many (but not everyone) as relatively unbiased, so their estimate of value might carry more weight than looking at the possible things you can or could have spent the points on. You many find CRTL in your local library or the same info may be on ConsumerReports.org.

Since there are several situations in which we pay excise tax on the value of miles (miles on car rentals, AX MR t/f's, etc.), check the values being used in determining the amount of excise tax. If there is an industry standard rate, that would seem to be an important indicator of value.

(As to one of the tangents above)-->if I were in OP's shoes and intended to donate the miles after I received them, I would think that there is at least a position that the miles did have value and that I had basis in the miles equal to the amount I had paid tax on. IIRC, the IRS's position that there is no deduction allowed for donating miles is more of a trade-off for avoiding the issue of taxing the miles. In this case, since the receipt of the miles was taxed, it would seem only reasonable that a donation is allowed. If I were going to take that position, I would donate the 100% of miles received as soon as I received them. No guarantees of success, but sometimes a reasonable position will prevail.