diff --git a/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/Errors.java b/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/Errors.java
index 2894a507a60..d750ac7eaf2 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/Errors.java
+++ b/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/Errors.java
@@ -233,6 +233,9 @@ public interface Errors {
 
     DiagnosticFactory0<PsiElement> REIFIED_TYPE_PARAMETER_NO_INLINE = DiagnosticFactory0.create(ERROR);
 
+    DiagnosticFactory0<JetDeclaration> TYPE_PARAMETERS_NOT_ALLOWED
+            = DiagnosticFactory0.create(ERROR, TYPE_PARAMETERS_OR_DECLARATION_SIGNATURE);
+
     // Members
 
     DiagnosticFactory0<JetModifierListOwner> PACKAGE_MEMBER_CANNOT_BE_PROTECTED =
@@ -339,6 +342,10 @@ public interface Errors {
 
     DiagnosticFactory0<JetNamedFunction> NO_TAIL_CALLS_FOUND = DiagnosticFactory0.create(WARNING, DECLARATION_SIGNATURE);
 
+    DiagnosticFactory0<JetParameter> FUNCTION_EXPRESSION_PARAMETER_WITH_DEFAULT_VALUE = DiagnosticFactory0.create(ERROR, PARAMETER_DEFAULT_VALUE);
+
+    DiagnosticFactory0<JetParameter> USELESS_VARARG_ON_PARAMETER = DiagnosticFactory0.create(WARNING);
+
     // Named parameters
 
     DiagnosticFactory0<JetParameter> DEFAULT_VALUE_NOT_ALLOWED_IN_OVERRIDE = DiagnosticFactory0.create(ERROR, PARAMETER_DEFAULT_VALUE);
diff --git a/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/PositioningStrategies.kt b/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/PositioningStrategies.kt
index a1154f712ae..857caff2bb2 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/PositioningStrategies.kt
+++ b/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/PositioningStrategies.kt
@@ -168,6 +168,18 @@ public object PositioningStrategies {
         }
     }
 
+    public val TYPE_PARAMETERS_OR_DECLARATION_SIGNATURE: PositioningStrategy<JetDeclaration> = object : PositioningStrategy<JetDeclaration>() {
+        override fun mark(element: JetDeclaration): List<TextRange> {
+            if (element is JetTypeParameterListOwner) {
+                val jetTypeParameterList = element.getTypeParameterList()
+                if (jetTypeParameterList != null) {
+                    return markElement(jetTypeParameterList)
+                }
+            }
+            return DECLARATION_SIGNATURE.mark(element)
+        }
+    }
+
     public val ABSTRACT_MODIFIER: PositioningStrategy<JetModifierListOwner> = modifierSetPosition(JetTokens.ABSTRACT_KEYWORD)
 
     public val INNER_MODIFIER: PositioningStrategy<JetModifierListOwner> = modifierSetPosition(JetTokens.INNER_KEYWORD)
diff --git a/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/rendering/DefaultErrorMessages.java b/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/rendering/DefaultErrorMessages.java
index 7aa8cba5515..b6672d7504c 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/rendering/DefaultErrorMessages.java
+++ b/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/rendering/DefaultErrorMessages.java
@@ -229,6 +229,9 @@ public class DefaultErrorMessages {
 
         MAP.put(PUBLIC_MEMBER_SHOULD_SPECIFY_TYPE, "Public or protected member should have specified type");
 
+        MAP.put(FUNCTION_EXPRESSION_PARAMETER_WITH_DEFAULT_VALUE, "A function expression is not allowed to specify default values for its parameters");
+        MAP.put(USELESS_VARARG_ON_PARAMETER, "Vararg on this parameter is useless");
+
         MAP.put(PROJECTION_ON_NON_CLASS_TYPE_ARGUMENT, "Projections are not allowed on type arguments of functions and properties");
         MAP.put(SUPERTYPE_NOT_INITIALIZED, "This type has a constructor, and thus must be initialized here");
         MAP.put(NOTHING_TO_OVERRIDE, "''{0}'' overrides nothing", NAME);
@@ -570,6 +573,7 @@ public class DefaultErrorMessages {
         MAP.put(TYPE_PARAMETER_AS_REIFIED, "Cannot use ''{0}'' as reified type parameter. Use a class instead.", NAME);
         MAP.put(REIFIED_TYPE_PARAMETER_NO_INLINE, "Only type parameters of inline functions can be reified");
         MAP.put(REIFIED_TYPE_FORBIDDEN_SUBSTITUTION, "Cannot use ''{0}'' as reified type parameter", RENDER_TYPE);
+        MAP.put(TYPE_PARAMETERS_NOT_ALLOWED, "Type parameters are not allowed here");
 
         MAP.put(SUPERTYPES_FOR_ANNOTATION_CLASS, "Annotation class cannot have supertypes");
         MAP.put(MISSING_VAL_ON_ANNOTATION_PARAMETER, "'val' keyword is missing on annotation parameter");
diff --git a/compiler/frontend/src/org/jetbrains/kotlin/resolve/DescriptorResolver.java b/compiler/frontend/src/org/jetbrains/kotlin/resolve/DescriptorResolver.java
index 60fd7aba81f..8bf40a7c4d6 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/resolve/DescriptorResolver.java
+++ b/compiler/frontend/src/org/jetbrains/kotlin/resolve/DescriptorResolver.java
@@ -241,7 +241,7 @@ public class DescriptorResolver {
     }
 
     @NotNull
-    public SimpleFunctionDescriptor resolveAnonymousFunctionDescriptor(
+    public SimpleFunctionDescriptor resolveFunctionExpressionDescriptor(
             @NotNull DeclarationDescriptor containingDescriptor,
             @NotNull JetScope scope,
             @NotNull JetNamedFunction function,
diff --git a/compiler/frontend/src/org/jetbrains/kotlin/types/expressions/BasicExpressionTypingVisitor.java b/compiler/frontend/src/org/jetbrains/kotlin/types/expressions/BasicExpressionTypingVisitor.java
index 1e0f838d615..86557104066 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/types/expressions/BasicExpressionTypingVisitor.java
+++ b/compiler/frontend/src/org/jetbrains/kotlin/types/expressions/BasicExpressionTypingVisitor.java
@@ -20,6 +20,8 @@ import com.google.common.collect.Lists;
 import com.intellij.psi.PsiElement;
 import com.intellij.psi.tree.IElementType;
 import com.intellij.psi.tree.TokenSet;
+import com.intellij.util.Function;
+import com.intellij.util.containers.ContainerUtil;
 import kotlin.Function1;
 import org.jetbrains.annotations.NotNull;
 import org.jetbrains.annotations.Nullable;
@@ -29,6 +31,7 @@ import org.jetbrains.kotlin.descriptors.annotations.Annotations;
 import org.jetbrains.kotlin.descriptors.impl.AnonymousFunctionDescriptor;
 import org.jetbrains.kotlin.descriptors.impl.LocalVariableDescriptor;
 import org.jetbrains.kotlin.diagnostics.Diagnostic;
+import org.jetbrains.kotlin.diagnostics.DiagnosticUtils;
 import org.jetbrains.kotlin.lexer.JetTokens;
 import org.jetbrains.kotlin.name.Name;
 import org.jetbrains.kotlin.psi.*;
@@ -1302,22 +1305,78 @@ public class BasicExpressionTypingVisitor extends ExpressionTypingVisitor {
             boolean isStatement,
             @Nullable WritableScope statementScope // must be not null if isStatement
     ) {
-        SimpleFunctionDescriptor functionDescriptor = components.expressionTypingServices.getDescriptorResolver().
-                resolveFunctionDescriptorWithAnnotationArguments(
-                        context.scope.getContainingDeclaration(), context.scope, function, context.trace, context.dataFlowInfo);
+        if (!isStatement) { // function expression
+            if (!function.getTypeParameters().isEmpty()) {
+                context.trace.report(TYPE_PARAMETERS_NOT_ALLOWED.on(function));
+            }
+            for (JetParameter parameter : function.getValueParameters()) {
+                if (parameter.hasDefaultValue()) {
+                    context.trace.report(FUNCTION_EXPRESSION_PARAMETER_WITH_DEFAULT_VALUE.on(parameter));
+                }
+                if (parameter.isVarArg()) {
+                    context.trace.report(USELESS_VARARG_ON_PARAMETER.on(parameter));
+                }
+            }
+        }
+
+        ExpressionTypingServices services = components.expressionTypingServices;
+
+        SimpleFunctionDescriptor functionDescriptor;
+        if (isStatement) {
+            functionDescriptor = services.getDescriptorResolver().
+                    resolveFunctionDescriptorWithAnnotationArguments(
+                            context.scope.getContainingDeclaration(), context.scope, function, context.trace, context.dataFlowInfo);
+            assert statementScope != null : "statementScope must be not null for function: " +
+                                            function.getName() +
+                                            " at location " +
+                                            DiagnosticUtils.atLocation(function);
+            statementScope.addFunctionDescriptor(functionDescriptor);
+        }
+        else {
+            functionDescriptor = services.getDescriptorResolver().resolveFunctionExpressionDescriptor(
+                    context.scope.getContainingDeclaration(), context.scope, function, context.trace, context.dataFlowInfo);
+        }
 
-        statementScope.addFunctionDescriptor(functionDescriptor);
         JetScope functionInnerScope = FunctionDescriptorUtil.getFunctionInnerScope(context.scope, functionDescriptor, context.trace);
-        components.expressionTypingServices.checkFunctionReturnType(functionInnerScope, function, functionDescriptor, context.dataFlowInfo, null, context.trace);
+        services.checkFunctionReturnType(functionInnerScope, function, functionDescriptor, context.dataFlowInfo, null, context.trace);
 
-        components.expressionTypingServices.resolveValueParameters(function.getValueParameters(), functionDescriptor.getValueParameters(),
-                                                                   context.scope, context.dataFlowInfo, context.trace);
+        services.resolveValueParameters(function.getValueParameters(), functionDescriptor.getValueParameters(), context.scope,
+                                        context.dataFlowInfo, context.trace);
 
-        ModifiersChecker.create(context.trace, components.additionalCheckerProvider).checkModifiersForLocalDeclaration(function, functionDescriptor);
+        ModifiersChecker.create(context.trace, components.additionalCheckerProvider).checkModifiersForLocalDeclaration(function,
+                                                                                                                       functionDescriptor);
         if (!function.hasBody()) {
             context.trace.report(NON_MEMBER_FUNCTION_NO_BODY.on(function, functionDescriptor));
         }
-        return DataFlowUtils.checkStatementType(function, context, context.dataFlowInfo);
+
+        if (isStatement) {
+            return DataFlowUtils.checkStatementType(function, context, context.dataFlowInfo);
+        }
+        else {
+            return DataFlowUtils.checkType(createFunctionType(functionDescriptor), function, context, context.dataFlowInfo);
+        }
+    }
+
+    @Nullable
+    private JetType createFunctionType(@NotNull SimpleFunctionDescriptor functionDescriptor) {
+        JetType receiverType = functionDescriptor.getExtensionReceiverParameter() != null
+                               ? functionDescriptor.getExtensionReceiverParameter().getType()
+                               : null;
+
+        JetType returnType = functionDescriptor.getReturnType();
+        if (returnType == null) {
+            return null;
+        }
+
+        List<JetType> parameters =
+                ContainerUtil.map(functionDescriptor.getValueParameters(), new Function<ValueParameterDescriptor, JetType>() {
+                    @Override
+                    public JetType fun(ValueParameterDescriptor descriptor) {
+                        return descriptor.getType();
+                    }
+                });
+
+        return components.builtIns.getFunctionType(Annotations.EMPTY, receiverType, parameters, returnType);
     }
 
     @Override
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/Common.kt b/compiler/testData/diagnostics/tests/functionAsExpression/Common.kt
new file mode 100644
index 00000000000..134b0e17edf
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/Common.kt
@@ -0,0 +1,20 @@
+// !DIAGNOSTICS: -UNUSED_PARAMETER
+
+annotation class ann(val name: String)
+val ok = "OK"
+
+class A
+
+val withName = fun name() {}
+val extensionWithName = fun A.name() {}
+val withoutName = fun () {}
+val extensionWithoutName = fun A.() {}
+
+fun withAnnotation() = [ann(ok)] fun () {}
+val withReturn = fun (): Int { return 5}
+val withExpression = fun() = 5
+val funfun = fun() = fun() = 5
+
+val parentesized = (fun () {})
+val parentesizedWithType = (fun () {}) : () -> Unit
+val withType = (fun () {}) : () -> Unit
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/Common.txt b/compiler/testData/diagnostics/tests/functionAsExpression/Common.txt
new file mode 100644
index 00000000000..2ac715e9b26
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/Common.txt
@@ -0,0 +1,29 @@
+package
+
+internal val extensionWithName: A.() -> kotlin.Unit
+internal val extensionWithoutName: A.() -> kotlin.Unit
+internal val funfun: () -> () -> kotlin.Int
+internal val ok: kotlin.String = "OK"
+internal val parentesized: () -> kotlin.Unit
+internal val parentesizedWithType: () -> kotlin.Unit
+internal val withExpression: () -> kotlin.Int
+internal val withName: () -> kotlin.Unit
+internal val withReturn: () -> kotlin.Int
+internal val withType: () -> kotlin.Unit
+internal val withoutName: () -> kotlin.Unit
+internal fun withAnnotation(): () -> kotlin.Unit
+
+internal final class A {
+    public constructor A()
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
+
+internal final annotation class ann : kotlin.Annotation {
+    public constructor ann(/*0*/ name: kotlin.String)
+    internal final val name: kotlin.String
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/ForbiddenNonLocalReturn.kt b/compiler/testData/diagnostics/tests/functionAsExpression/ForbiddenNonLocalReturn.kt
new file mode 100644
index 00000000000..85b94c9bd5d
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/ForbiddenNonLocalReturn.kt
@@ -0,0 +1,27 @@
+// !DIAGNOSTICS: -UNUSED_VARIABLE
+
+fun test() {
+    fun bar() {
+        val bas = fun() {
+            <!RETURN_NOT_ALLOWED!>return@bar<!>
+        }
+    }
+
+    val bar = fun() {
+        <!RETURN_NOT_ALLOWED!>return@test<!>
+    }
+}
+
+fun foo() {
+    val bal = @bag fun () {
+        val bar = fun() {
+            <!RETURN_NOT_ALLOWED!>return@bag<!>
+        }
+        return@bag
+    }
+    val bag = fun name() {
+        val bar = fun () {
+            <!RETURN_NOT_ALLOWED!>return@name<!>
+        }
+    }
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/ForbiddenNonLocalReturn.txt b/compiler/testData/diagnostics/tests/functionAsExpression/ForbiddenNonLocalReturn.txt
new file mode 100644
index 00000000000..bdb11ff5fa8
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/ForbiddenNonLocalReturn.txt
@@ -0,0 +1,4 @@
+package
+
+internal fun foo(): kotlin.Unit
+internal fun test(): kotlin.Unit
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/FunctionType.kt b/compiler/testData/diagnostics/tests/functionAsExpression/FunctionType.kt
new file mode 100644
index 00000000000..48517ffcc6d
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/FunctionType.kt
@@ -0,0 +1,31 @@
+// !CHECK_TYPE
+// !DIAGNOSTICS: -UNUSED_PARAMETER -UNUSED_VARIABLE
+
+fun testReturnType(foo: String) {
+    val bar = fun () = foo
+
+    bar.checkType { it : _<() -> String> }
+
+    val bas: () -> String = fun () = foo
+
+    val bag: () -> Int = <!TYPE_MISMATCH!>fun () = foo<!>
+}
+
+fun testParamType() {
+    val bar = fun (bal: String){}
+
+    bar.checkType { it : _<(String) -> Unit> }
+
+    val bas: (String) -> Unit = fun (param: String) {}
+    val bag: (Int) -> Unit = <!TYPE_MISMATCH!>fun (param: String) {}<!>
+}
+
+fun testReceiverType() {
+    val bar = fun String.() {}
+
+    bar.checkType { it : _<String.() -> Unit> }
+
+    val bas: String.() -> Unit = fun String.() {}
+
+    val bag: Int.() -> Unit = <!TYPE_MISMATCH!>fun String.() {}<!>
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/FunctionType.txt b/compiler/testData/diagnostics/tests/functionAsExpression/FunctionType.txt
new file mode 100644
index 00000000000..b67af8e0032
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/FunctionType.txt
@@ -0,0 +1,5 @@
+package
+
+internal fun testParamType(): kotlin.Unit
+internal fun testReceiverType(): kotlin.Unit
+internal fun testReturnType(/*0*/ foo: kotlin.String): kotlin.Unit
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/NoOverloadError.kt b/compiler/testData/diagnostics/tests/functionAsExpression/NoOverloadError.kt
new file mode 100644
index 00000000000..b018c444f65
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/NoOverloadError.kt
@@ -0,0 +1,18 @@
+// !DIAGNOSTICS: -UNUSED_PARAMETER -UNUSED_VARIABLE
+
+val bar = fun name() {}
+val bas = fun name() {}
+
+fun gar(p: Any?) = fun name() {}
+fun gas(p: Any?) = fun name() {}
+
+fun outer() {
+    val bar = fun name() {}
+    val bas = fun name() {}
+
+    fun gar(p: Any?) = fun name() {}
+    fun gas(p: Any?) = fun name() {}
+
+    gar(fun name() {})
+    gar(fun name() {})
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/NoOverloadError.txt b/compiler/testData/diagnostics/tests/functionAsExpression/NoOverloadError.txt
new file mode 100644
index 00000000000..92329d6ba5f
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/NoOverloadError.txt
@@ -0,0 +1,7 @@
+package
+
+internal val bar: () -> kotlin.Unit
+internal val bas: () -> kotlin.Unit
+internal fun gar(/*0*/ p: kotlin.Any?): () -> kotlin.Unit
+internal fun gas(/*0*/ p: kotlin.Any?): () -> kotlin.Unit
+internal fun outer(): kotlin.Unit
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/Parameters.kt b/compiler/testData/diagnostics/tests/functionAsExpression/Parameters.kt
new file mode 100644
index 00000000000..8b42597b6d2
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/Parameters.kt
@@ -0,0 +1,18 @@
+// !DIAGNOSTICS: -UNUSED_PARAMETER -UNUSED_VARIABLE
+
+val bar = fun(p: Int = <!FUNCTION_EXPRESSION_PARAMETER_WITH_DEFAULT_VALUE!>3<!>) {}
+val bas = fun(<!USELESS_VARARG_ON_PARAMETER!>vararg p: Int<!>) {}
+
+fun gar() = fun(p: Int = <!FUNCTION_EXPRESSION_PARAMETER_WITH_DEFAULT_VALUE!>3<!>) {}
+fun gas() = fun(<!USELESS_VARARG_ON_PARAMETER!>vararg p: Int<!>) {}
+
+fun outer(b: Any?) {
+    val bar = fun(p: Int = <!FUNCTION_EXPRESSION_PARAMETER_WITH_DEFAULT_VALUE!>3<!>) {}
+    val bas = fun(<!USELESS_VARARG_ON_PARAMETER!>vararg p: Int<!>) {}
+
+    fun gar() = fun(p: Int = <!FUNCTION_EXPRESSION_PARAMETER_WITH_DEFAULT_VALUE!>3<!>) {}
+    fun gas() = fun(<!USELESS_VARARG_ON_PARAMETER!>vararg p: Int<!>) {}
+
+    outer(fun(p: Int = <!FUNCTION_EXPRESSION_PARAMETER_WITH_DEFAULT_VALUE!>3<!>) {})
+    outer(fun(<!USELESS_VARARG_ON_PARAMETER!>vararg p: Int<!>) {})
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/Parameters.txt b/compiler/testData/diagnostics/tests/functionAsExpression/Parameters.txt
new file mode 100644
index 00000000000..3607b3c76b9
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/Parameters.txt
@@ -0,0 +1,7 @@
+package
+
+internal val bar: (kotlin.Int) -> kotlin.Unit
+internal val bas: (kotlin.IntArray) -> kotlin.Unit
+internal fun gar(): (kotlin.Int) -> kotlin.Unit
+internal fun gas(): (kotlin.IntArray) -> kotlin.Unit
+internal fun outer(/*0*/ b: kotlin.Any?): kotlin.Unit
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/ReturnAndLabels.kt b/compiler/testData/diagnostics/tests/functionAsExpression/ReturnAndLabels.kt
new file mode 100644
index 00000000000..a3012dac7de
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/ReturnAndLabels.kt
@@ -0,0 +1,13 @@
+// !DIAGNOSTICS: -UNUSED_VARIABLE
+
+val label_fun = @label fun () {
+    return@label
+}
+
+val parenthesized_label_fun = (@label fun () {
+    return@label
+})
+
+val fun_with_name = fun name() {
+    return@name
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/ReturnAndLabels.txt b/compiler/testData/diagnostics/tests/functionAsExpression/ReturnAndLabels.txt
new file mode 100644
index 00000000000..ac8c8eb23c6
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/ReturnAndLabels.txt
@@ -0,0 +1,5 @@
+package
+
+internal val fun_with_name: () -> kotlin.Unit
+internal val label_fun: () -> kotlin.Unit
+internal val parenthesized_label_fun: () -> kotlin.Unit
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/ReturnTypeCheck.kt b/compiler/testData/diagnostics/tests/functionAsExpression/ReturnTypeCheck.kt
new file mode 100644
index 00000000000..4aa91b35e10
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/ReturnTypeCheck.kt
@@ -0,0 +1,9 @@
+val foo = fun(a: Int): String {
+    if (a == 1) return "4"
+    when (a) {
+        5 -> return "2"
+        3 -> return <!NULL_FOR_NONNULL_TYPE!>null<!>
+        2 -> return <!CONSTANT_EXPECTED_TYPE_MISMATCH!>2<!>
+    }
+    return ""
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/ReturnTypeCheck.txt b/compiler/testData/diagnostics/tests/functionAsExpression/ReturnTypeCheck.txt
new file mode 100644
index 00000000000..92218499c94
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/ReturnTypeCheck.txt
@@ -0,0 +1,3 @@
+package
+
+internal val foo: (kotlin.Int) -> kotlin.String
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/ScopeCheck.kt b/compiler/testData/diagnostics/tests/functionAsExpression/ScopeCheck.kt
new file mode 100644
index 00000000000..108e658e5c3
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/ScopeCheck.kt
@@ -0,0 +1,20 @@
+// !DIAGNOSTICS: -UNUSED_VARIABLE
+
+trait B {
+    fun b_fun() {}
+}
+
+fun test(param: String) {
+
+    val local_val = 4
+    val bar = fun B.(fun_param: Int) {
+        param.length()
+        b_fun()
+        val inner_bar = local_val + fun_param
+
+        <!UNRESOLVED_REFERENCE!>bar<!>
+    }
+
+    <!UNRESOLVED_REFERENCE!>inner_bar<!>
+    <!UNRESOLVED_REFERENCE!>fun_param<!>
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/ScopeCheck.txt b/compiler/testData/diagnostics/tests/functionAsExpression/ScopeCheck.txt
new file mode 100644
index 00000000000..0aefb08664b
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/ScopeCheck.txt
@@ -0,0 +1,10 @@
+package
+
+internal fun test(/*0*/ param: kotlin.String): kotlin.Unit
+
+internal trait B {
+    internal open fun b_fun(): kotlin.Unit
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/WithGenericParameters.kt b/compiler/testData/diagnostics/tests/functionAsExpression/WithGenericParameters.kt
new file mode 100644
index 00000000000..8b9a0ddef15
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/WithGenericParameters.kt
@@ -0,0 +1,18 @@
+// !DIAGNOSTICS: -UNUSED_PARAMETER
+
+trait A
+fun devNull(a: Any?){}
+
+val generic_fun = fun<!TYPE_PARAMETERS_NOT_ALLOWED!><T><!>(t: T): T = null!!
+val extension_generic_fun = fun<!TYPE_PARAMETERS_NOT_ALLOWED!><T><!><!UNRESOLVED_REFERENCE!>T<!>.(t: T): T = null!!
+
+fun fun_with_where() = fun <!TYPE_PARAMETERS_NOT_ALLOWED!><T><!> <!UNRESOLVED_REFERENCE!>T<!>.(t: T): T where T: A {<!NO_RETURN_IN_FUNCTION_WITH_BLOCK_BODY!>}<!>
+
+
+fun outer() {
+    devNull(fun <!TYPE_PARAMETERS_NOT_ALLOWED!><T><!>() {})
+    devNull(fun <!TYPE_PARAMETERS_NOT_ALLOWED!><T><!> T.name() {})
+    devNull(fun <!TYPE_PARAMETERS_NOT_ALLOWED!><T><!> name(): T = null!!)
+    devNull(fun <!TYPE_PARAMETERS_NOT_ALLOWED!><T><!> name(t: T) {})
+    devNull(fun <!TYPE_PARAMETERS_NOT_ALLOWED!><T><!> name() where T:A {})
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/WithGenericParameters.txt b/compiler/testData/diagnostics/tests/functionAsExpression/WithGenericParameters.txt
new file mode 100644
index 00000000000..b61c89d6898
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/WithGenericParameters.txt
@@ -0,0 +1,13 @@
+package
+
+internal val extension_generic_fun: [ERROR : T].(T) -> T
+internal val generic_fun: (T) -> T
+internal fun devNull(/*0*/ a: kotlin.Any?): kotlin.Unit
+internal fun fun_with_where(): [ERROR : T].(T) -> T
+internal fun outer(): kotlin.Unit
+
+internal trait A {
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/WithOuterGeneric.kt b/compiler/testData/diagnostics/tests/functionAsExpression/WithOuterGeneric.kt
new file mode 100644
index 00000000000..ae58e457603
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/WithOuterGeneric.kt
@@ -0,0 +1,31 @@
+// !DIAGNOSTICS: -UNUSED_PARAMETER -UNUSED_VARIABLE
+
+fun <T> parameter() = fun (t: T) = t
+fun <T> receiver() = fun T.() = this
+fun <T> returnType() = fun (): T = null!!
+
+val <T> T.fromVal: () -> T get() = fun (): T = this@fromVal
+
+fun devNull(a: Any?){}
+
+fun <O> outer() {
+    fun <T> parameter() = fun (t: T) = t
+    fun <T> receiver() = fun T.() = this
+    fun <T> returnType() = fun (): T = null!!
+
+    devNull(fun (t: O) = t)
+    devNull(fun O.() = this)
+    devNull(fun (): O = null!!)
+}
+
+class Outer<O> {
+    fun <T> parameter() = fun (t: T) = t
+    fun <T> receiver() = fun T.() = this
+    fun <T> returnType() = fun (): T = null!!
+
+    init {
+        devNull(fun (t: O) = t)
+        devNull(fun O.() = this)
+        devNull(fun (): O = null!!)
+    }
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/WithOuterGeneric.txt b/compiler/testData/diagnostics/tests/functionAsExpression/WithOuterGeneric.txt
new file mode 100644
index 00000000000..0ae124cecd4
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/WithOuterGeneric.txt
@@ -0,0 +1,18 @@
+package
+
+internal val </*0*/ T> T.fromVal: () -> T
+internal fun devNull(/*0*/ a: kotlin.Any?): kotlin.Unit
+internal fun </*0*/ O> outer(): kotlin.Unit
+internal fun </*0*/ T> parameter(): (T) -> T
+internal fun </*0*/ T> receiver(): T.() -> T
+internal fun </*0*/ T> returnType(): () -> T
+
+internal final class Outer</*0*/ O> {
+    public constructor Outer</*0*/ O>()
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    internal final fun </*0*/ T> parameter(): (T) -> T
+    internal final fun </*0*/ T> receiver(): T.() -> T
+    internal final fun </*0*/ T> returnType(): () -> T
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/WithoutBody.kt b/compiler/testData/diagnostics/tests/functionAsExpression/WithoutBody.kt
new file mode 100644
index 00000000000..f4e887edb4d
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/WithoutBody.kt
@@ -0,0 +1,12 @@
+// !DIAGNOSTICS: -UNUSED_PARAMETER
+
+annotation class ann
+val bas = <!NON_MEMBER_FUNCTION_NO_BODY!>fun ()<!>
+
+fun bar(a: Any) = <!NON_MEMBER_FUNCTION_NO_BODY!>fun name()<!>
+
+fun outer() {
+    bar(<!NON_MEMBER_FUNCTION_NO_BODY!>fun ()<!>)
+    bar(<!NON_MEMBER_FUNCTION_NO_BODY!>fun name()<!>)
+    bar(<!NON_MEMBER_FUNCTION_NO_BODY!>[ann] fun name()<!>)
+}
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/WithoutBody.txt b/compiler/testData/diagnostics/tests/functionAsExpression/WithoutBody.txt
new file mode 100644
index 00000000000..d0260cb3578
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/WithoutBody.txt
@@ -0,0 +1,12 @@
+package
+
+internal val bas: () -> kotlin.Unit
+internal fun bar(/*0*/ a: kotlin.Any): () -> kotlin.Unit
+internal fun outer(): kotlin.Unit
+
+internal final annotation class ann : kotlin.Annotation {
+    public constructor ann()
+    public open override /*1*/ /*fake_override*/ fun equals(/*0*/ other: kotlin.Any?): kotlin.Boolean
+    public open override /*1*/ /*fake_override*/ fun hashCode(): kotlin.Int
+    public open override /*1*/ /*fake_override*/ fun toString(): kotlin.String
+}
diff --git a/compiler/tests/org/jetbrains/kotlin/checkers/JetDiagnosticsTestGenerated.java b/compiler/tests/org/jetbrains/kotlin/checkers/JetDiagnosticsTestGenerated.java
index 73c44d338ac..95b0e404e73 100644
--- a/compiler/tests/org/jetbrains/kotlin/checkers/JetDiagnosticsTestGenerated.java
+++ b/compiler/tests/org/jetbrains/kotlin/checkers/JetDiagnosticsTestGenerated.java
@@ -58,6 +58,7 @@ public class JetDiagnosticsTestGenerated extends AbstractJetDiagnosticsTest {
             Tests.Enum.class,
             Tests.Evaluate.class,
             Tests.Extensions.class,
+            Tests.FunctionAsExpression.class,
             Tests.FunctionLiterals.class,
             Tests.Generics.class,
             Tests.Imports.class,
@@ -4607,6 +4608,81 @@ public class JetDiagnosticsTestGenerated extends AbstractJetDiagnosticsTest {
             }
         }
 
+        @TestMetadata("compiler/testData/diagnostics/tests/functionAsExpression")
+        @TestDataPath("$PROJECT_ROOT")
+        @RunWith(JUnit3RunnerWithInners.class)
+        public static class FunctionAsExpression extends AbstractJetDiagnosticsTest {
+            public void testAllFilesPresentInFunctionAsExpression() throws Exception {
+                JetTestUtils.assertAllTestsPresentByMetadata(this.getClass(), new File("compiler/testData/diagnostics/tests/functionAsExpression"), Pattern.compile("^(.+)\\.kt$"), true);
+            }
+
+            @TestMetadata("Common.kt")
+            public void testCommon() throws Exception {
+                String fileName = JetTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/functionAsExpression/Common.kt");
+                doTest(fileName);
+            }
+
+            @TestMetadata("ForbiddenNonLocalReturn.kt")
+            public void testForbiddenNonLocalReturn() throws Exception {
+                String fileName = JetTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/functionAsExpression/ForbiddenNonLocalReturn.kt");
+                doTest(fileName);
+            }
+
+            @TestMetadata("FunctionType.kt")
+            public void testFunctionType() throws Exception {
+                String fileName = JetTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/functionAsExpression/FunctionType.kt");
+                doTest(fileName);
+            }
+
+            @TestMetadata("NoOverloadError.kt")
+            public void testNoOverloadError() throws Exception {
+                String fileName = JetTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/functionAsExpression/NoOverloadError.kt");
+                doTest(fileName);
+            }
+
+            @TestMetadata("Parameters.kt")
+            public void testParameters() throws Exception {
+                String fileName = JetTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/functionAsExpression/Parameters.kt");
+                doTest(fileName);
+            }
+
+            @TestMetadata("ReturnAndLabels.kt")
+            public void testReturnAndLabels() throws Exception {
+                String fileName = JetTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/functionAsExpression/ReturnAndLabels.kt");
+                doTest(fileName);
+            }
+
+            @TestMetadata("ReturnTypeCheck.kt")
+            public void testReturnTypeCheck() throws Exception {
+                String fileName = JetTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/functionAsExpression/ReturnTypeCheck.kt");
+                doTest(fileName);
+            }
+
+            @TestMetadata("ScopeCheck.kt")
+            public void testScopeCheck() throws Exception {
+                String fileName = JetTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/functionAsExpression/ScopeCheck.kt");
+                doTest(fileName);
+            }
+
+            @TestMetadata("WithGenericParameters.kt")
+            public void testWithGenericParameters() throws Exception {
+                String fileName = JetTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/functionAsExpression/WithGenericParameters.kt");
+                doTest(fileName);
+            }
+
+            @TestMetadata("WithOuterGeneric.kt")
+            public void testWithOuterGeneric() throws Exception {
+                String fileName = JetTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/functionAsExpression/WithOuterGeneric.kt");
+                doTest(fileName);
+            }
+
+            @TestMetadata("WithoutBody.kt")
+            public void testWithoutBody() throws Exception {
+                String fileName = JetTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/functionAsExpression/WithoutBody.kt");
+                doTest(fileName);
+            }
+        }
+
         @TestMetadata("compiler/testData/diagnostics/tests/functionLiterals")
         @TestDataPath("$PROJECT_ROOT")
         @InnerTestClasses({