Where do i report interest from IRS on prior year's federal tax overpayment

IRS interest 1099 form probably only says 1099 (rev. 9-07) on it.  The IRS EIN # on  it is 38-1798424.

Enter interest from the IRS like a 1099Int and put the amount in box 1.  
Enter a 1099-Int  under
Federal on left
Wages & Income
Interest and Dividends
Interest on 1099INT - Click the Start or Update button

Put the interest amount in box 1

Why in Box 1 and not in Box 3? They do not show the Box number on their 1099 form. Why shouldn't this be considered interest received from the US Treasury and as such exempt from State Taxes by federal law?