I hate it when people send me money as a gift unless it's a tip on top of what they paid for their commission. This is one of the big reasons I no longer accept commission payments directly and instead insist upon sending invoices and having them pay through that.

I would just say "Sorry, I don't feel comfortable doing that as it would violate PayPal's ToS. May I send it as a goods transaction instead?" and if they refuse, move on.