Typically it's an epidermal cyst.

Often it's an epidermal cyst, but have your health care provider take a look to give you information specific to your situation.

Yes they can, I have gone to my family doctor and have been diagnosed with an epidermoid cyst in the lower part of my belly button. At first it was a purplish-blue color and recently it got infected and flared up into something that looked like a boil. An epidermoid cyst is basically a cyst formed in a pore in between your skin. Hence epidermoid comes from epidermal. They aren't common but are very possible.

An epidermal cyst. Usually filled with skin cell, oil and dirt. If sac not removed completely, it will fill back up over time. Time varies to person.

Muscle tissue is deep to epidermal tissue. Epidermal tissue is superficial to muscle tissue.