I’ll briefly respond to each of your beliefs about top-coded values in IPUMS CPS before addressing your questions.
(1) Prior to 2011, the income variables have top-coded values to preserve confidentiality of responses. Starting in 2011, the Census Bureau implemented a rank proximity swapping procedure. This is the way the data in IPUMS CPS is provided by default. You can read more information about this on this page. A method developed and described in Larrimore et al. (2008) makes these top-coding or swapping procedures roughly comparable over time. You can download the necessary data files to implement this procedure on this page.
(2) The procedure implemented and described in Larrimore et al. (2008) does allow for slightly better estimates of average incomes and investigations of income inequality.
(3) As far as I understand the Census Bureau’s documentation correctly, in the rank proximity swap procedure all incomes above the top-code are exchanged among individuals within a bounded interval. Therefore, the swap happens at the individual level - rather than the household level. This is done to preserve confidentiality, with some reduction in accuracy.
(4) Yes, correct. The data available in the IPUMS CPS extract system uses the original method for preserving confidentiality as implemented by the Census Bureau.
(5) Yes, correct. There is no R code readily available to perform the required merge. It should be quite straightforward since the files should be the same length.
Questions:
(1) I do not know about such a practice. I suppose it seems plausible, but I have not seen explicit documentation of this practice. You may find reaching out the the Census Bureau directly about this question helpful.
(2) I also do not know much about this detail. I do know that the Census Bureau goes to great lengths to maintain the confidentiality of respondents in the CPS microdata. Additionally, since the CPS is a sample of the overall population it is quite unlikely that in any given year a specific individual on the Fortune 100 or 500 list is included in the CPS sample.