By John D. McKinnon 

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.

The November executive action offers some four million illegal immigrants who qualify the chance to apply for "deferred action," which gives a temporary reprieve from deportation and the ability to apply for work permits.

Because of Mr. Obama's executive action and the IRS interpretation, "these individuals will be eligible to claim billions of dollars in tax benefits based on earnings from unauthorized work in the United States," Mr. Grassley said. "The tax code shouldn't reward those who broke our immigration laws," he added.

Other Republican lawmakers have charged that the payments would amount to an "amnesty bonus" under Mr. Obama's action.

The action allows many to obtain work permits and Social Security numbers. Getting a Social Security number in turn will allow those who qualify to apply for a tax break known as the Earned Income Tax Credit, the IRS said. The credit provides cash payments to lower-income households, even those that didn't earn enough to pay income tax, and can be worth several thousand dollars.

Eligible taxpayers could obtain the credit for as many as three prior years under the IRS interpretation.

Mr. Koskinen's letter said the agency is merely following a 15-year-old opinion by the IRS Chief Counsel's office. That opinion said that "a taxpayer may claim the Earned Income Tax Credit (EITC) for a taxable year using a social security number (SSN) acquired in a later taxable year," according to Mr. Koskinen's letter. After a review, "we believe that the 2000 [opinion] is correct," the commissioner added.

The agency didn't comment on Mr. Grassley's statement.

The issue has added to friction between the Obama administration and GOP lawmakers over the immigration action, which is also the issue at the heart of a stalemate over Homeland Security funding.

Mr. Grassley said he would seek to write legislation overturning the IRS interpretation.

Write to John D. McKinnon at john.mckinnon@wsj.com