There is a work around for this issue. In my case, I have a custom post type for "Meetings" and created a frontend submission form so users could create new Meetings from the frontend. I created the CPT and form using Metbox.io. In the frontend form, above the description area, there is a button for WP File Download which opens a popup window.This will enable users from the frontend to create a category, (then you must refresh browser) and then upload files to that category. No need to go through the dashboard. You would just need to ensure that your permissions allow for creating categories for the user group in question, and if necessary disable "edit categories" but leave "edit own category" enabled.