This counter-bore is 3/16" deep and the rifle functions perfectly. I've heard that you can c-b back to just in front of the gas hole and the rifle will still function but I never have received a definitive answer as to how far EXACTLY a bore can be c-b'ed before the function gets violated.
Jon, the problem with counterboring is that you can only counterbore once or twice before you have too much and it affects accuracy. As for cutting back, I cut one back almost 3/16ths of an inch without affecting operation. you do have to trim back the muzzle-tab on the locknut though. Refaced and crowned it, took it from a 4 to a 1.
One of the best purchases I have made lately is the CMP muzzle gage that looks like a 308 round with long bullet. It will tell you exactly how much muzzle wear there is and will give you an idea of just how deep you need to go to get good rifling.