You have the "Block payments from U.S. users who don't provide a confirmed address:" option set to Yes.

Here's how to resolve this error: 

1. Go to your ‘Preferences for receiving payments’ page.
2. Select No for "Block payments from US users who don't provide a confirmed address."

If your Virtual Terminal payments fail, adjust your Payment Receiving Preferences in your PayPal account Profile.

See the Developer Portal for a complete list of NVP/SOAP API error codes.