Had this happen to me last year. We hit over seven figures, and our account got flagged by PP to match records to our taxes
Any PP account will get flagged once 20k of transactions have been placed annually. Sometimes sooner, sometimes later.
The IRS is cracking down on all online payment accounts (PP, Amazon, Square, etc). to have proof of gross income for most online retailers.
Follow there guidelines, and submit the information they request, and you should be good to go.
Make sure all names, match what PP already has on file, or it turns into a HUGE headache.
To help answer your questions:
1. PayPal wont close the account, you just will not be able to accept payments until they have the required information.
2. They may ask, they did for me, But it was a few weeks later for me that they wanted that information.
3. Yes, you will be required to turn into Business Account. Same thing, just more features and support. Not really a big deal.
Hope that helps.