2. The word "farm" is used for people who rank up many accounts for earning money. I don't think there's a hard limit: 2 accounts isn't a farm, 20 is. Somewhere in between is a gray area. It was a much bigger problem before the introduction of the Merit system, when shitposting in Off-topic was enough to reach Legendary status.
3. Yes. From the forum rules' perspective, I've never seen anyone banned just for owning many accounts. But if one of them gets banned, the rest is guilty of ban evasion. Scams aren't moderated, so Merit sharing and cheating won't get you banned. You could say it's "allowed" from the forum's perspective. But that's where the "alt farm hunters" come in with the red tags.

I agree that not a single experienced cheater will come and admit how many accounts he has. As long as the forum allows it, you can create hundreds of alternative accounts.