most likely, if its a high amount of money you've made, you'd prolly receive a 1099, or something like that indicating any income received. if not, normally the 'honorable' thing to do would be to claim it yourself when filing your taxes. if there is a cap on how much an item can be sold for RL cash (say $10 for example), then i highly doubt a sale or two would affect your taxes as much unless one would become a farmer and D3s AH has become a viable source of income.

That would be the "smart" thing to do, not the "honorable" thing. Remember that tax fraud has no statute of limitations, if the IRS ever suspects that you had income that you didn't claim when you filed, they can audit you even if it was 30 years ago. Good luck coming up with that documentation!

I'm sure someone that is familiar with how PayPal works can answer that question. There are tons of people selling goods a services over the internet and getting payed through PayPal. Does PayPal report these earnings to the Government? Is it strictly up to the user to report these earnings themselves?