To issue a refund on an order that is already invoiced in Magento

DO NOT USE the Credit Memo button from the Information Section of the Order as seen below

First click on the Invoices Tab and then Click on the Invoice you want to Refund

Once you are viewing the Invoice you want to Refund, click the Credit Memo button

Then specify the Qty to Refund for Each Item on the Order and then click the Update Qty's Button

In this example we are going to refund 3 of the NCR Receipt Printers

This will update the line item detail as seen here

Once you have finished making changes to the Credit Memo and you are ready to issue the Refund

Click on the Refund button

You will then get a notification that the credit memo has been created 

If you login to your, Paypal, etc account you will then see the Refund

Example of an Refund

Note: After completing the Credit Memo process in Magento make sure you create a Return transaction in CounterPoint to reflect the items that you manually refunded in Magento