You're right - marking something as a gift when it's actually merchandise is illegal, and if the customer asks you do it, they're trying to avoid fees. Let them know point blank that you'll be marking it correctly, because if it's found out, you'll be the one paying the fine, not them.
Any duty or custom fees are the buyer's responsibility, and they should be aware of this when buying from overseas. Some aren't, however, and it might be worth mentioning it in your policies and your message to buyers when a purchase it made.