As a long-time machinist (started in '71), I can tell you that it is normal for all threads, external or internal to start with a 45 degree chamfer that is 1-2 thread pitches in depth. A straight surface leaves a weak partial thread that is of no value and makes it hard to get the mated parted started in straight.
Most parts with internal threads define the thread chamfer to be slightly larger than the major diameter of the thread.
I should add that the tool shown doesn't look like it would do both face and chamfer an ID, but I'd need to see the end of the cutter more closely.
Also, most facing jobs should only require a small fraction of one thread to be removed.
Last edited by DaveSSS; 01-06-10 at 08:25 AM.