WASHINGTON—The Internal Revenue Service on Monday confirmed it would allow illegal immigrants benefiting from President Barack Obama’s recent executive action to file for tax refunds for prior years, fueling an outcry from Republicans.

The IRS explanation came in a letter from Commissioner John Koskinen to a veteran GOP lawmaker, Sen. Charles Grassley (R., Iowa). The letter confirmed and expanded on previous public comments by agency officials. In response, Mr. Grassley vowed to push legislation to overturn the policy.

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