diff --git a/compiler/backend/src/org/jetbrains/jet/codegen/context/MethodContext.java b/compiler/backend/src/org/jetbrains/jet/codegen/context/MethodContext.java
index 458097bc1df..1f867415ea0 100644
--- a/compiler/backend/src/org/jetbrains/jet/codegen/context/MethodContext.java
+++ b/compiler/backend/src/org/jetbrains/jet/codegen/context/MethodContext.java
@@ -41,7 +41,7 @@ public class MethodContext extends CodegenContext {
     @Override
     public StackValue lookupInContext(DeclarationDescriptor d, @Nullable StackValue result, GenerationState state, boolean ignoreNoOuter) {
         if (getContextDescriptor() == d) {
-            return StackValue.local(0, AsmTypeConstants.OBJECT_TYPE);
+            return result != null ? result : StackValue.local(0, AsmTypeConstants.OBJECT_TYPE);
         }
 
         //noinspection ConstantConditions
diff --git a/compiler/testData/codegen/box/closures/closureInsideClosure/localFunInsideLocalFun.kt b/compiler/testData/codegen/box/closures/closureInsideClosure/localFunInsideLocalFun.kt
new file mode 100644
index 00000000000..106b0a763b3
--- /dev/null
+++ b/compiler/testData/codegen/box/closures/closureInsideClosure/localFunInsideLocalFun.kt
@@ -0,0 +1,13 @@
+fun box(): String {
+    fun rec(n : Int) {
+        fun x(m : Int) {
+            if (n > 0) rec(n - 1)
+        }
+
+        x(0)
+    }
+
+    rec(5)
+    
+    return "OK"
+}
diff --git a/compiler/testData/codegen/box/closures/closureInsideClosure/localFunInsideLocalFunDifferentSignatures.kt b/compiler/testData/codegen/box/closures/closureInsideClosure/localFunInsideLocalFunDifferentSignatures.kt
new file mode 100644
index 00000000000..38c08c8a19d
--- /dev/null
+++ b/compiler/testData/codegen/box/closures/closureInsideClosure/localFunInsideLocalFunDifferentSignatures.kt
@@ -0,0 +1,13 @@
+fun box(): String {
+    fun rec(n : Int) {
+        fun x(m : Int, k : Int) {
+            if (n > 0) rec(n - 1 + k)
+        }
+
+        x(0, 0)
+    }
+
+    rec(5)
+    
+    return "OK"
+}
diff --git a/compiler/testData/codegen/box/closures/closureInsideClosure/threeLevels.kt b/compiler/testData/codegen/box/closures/closureInsideClosure/threeLevels.kt
new file mode 100644
index 00000000000..e0fc6457f26
--- /dev/null
+++ b/compiler/testData/codegen/box/closures/closureInsideClosure/threeLevels.kt
@@ -0,0 +1,17 @@
+fun box(): String {
+    fun foo(x: Int) {
+        fun bar(y: Int) {
+            fun baz(z: Int) {
+                foo(x - 1)
+            }
+            
+            baz(y)
+        }
+        
+        if (x > 0) bar(x)
+    }
+    
+    foo(1)
+    
+    return "OK"
+}
diff --git a/compiler/testData/codegen/box/closures/closureInsideClosure/threeLevelsDifferentSignatures.kt b/compiler/testData/codegen/box/closures/closureInsideClosure/threeLevelsDifferentSignatures.kt
new file mode 100644
index 00000000000..a5fadc55936
--- /dev/null
+++ b/compiler/testData/codegen/box/closures/closureInsideClosure/threeLevelsDifferentSignatures.kt
@@ -0,0 +1,16 @@
+fun box(): String {
+    fun foo(x: Int, s: String): String {
+        fun bar(y: Int) {
+            fun baz(z: Int, k: Int) {
+                foo(x - 1 + k, "Fail")
+            }
+            
+            baz(y, 0)
+        }
+        
+        if (x > 0) bar(x)
+        return s
+    }
+    
+    return foo(1, "OK")
+}
diff --git a/compiler/testData/codegen/box/closures/closureInsideClosure/varAsFunInsideLocalFun.kt b/compiler/testData/codegen/box/closures/closureInsideClosure/varAsFunInsideLocalFun.kt
new file mode 100644
index 00000000000..e0fb5427100
--- /dev/null
+++ b/compiler/testData/codegen/box/closures/closureInsideClosure/varAsFunInsideLocalFun.kt
@@ -0,0 +1,15 @@
+//KT-3276
+
+fun box(): String {
+    fun rec(n : Int) {
+        val x = { (m : Int) ->
+            if (n > 0) rec(n - 1)
+        }
+
+        x(0)
+    }
+
+    rec(5)
+    
+    return "OK"
+}
diff --git a/compiler/tests/org/jetbrains/jet/codegen/generated/BlackBoxCodegenTestGenerated.java b/compiler/tests/org/jetbrains/jet/codegen/generated/BlackBoxCodegenTestGenerated.java
index 6424a4c71f0..23cadb3a71b 100644
--- a/compiler/tests/org/jetbrains/jet/codegen/generated/BlackBoxCodegenTestGenerated.java
+++ b/compiler/tests/org/jetbrains/jet/codegen/generated/BlackBoxCodegenTestGenerated.java
@@ -888,6 +888,7 @@ public class BlackBoxCodegenTestGenerated extends AbstractBlackBoxCodegenTest {
     }
     
     @TestMetadata("compiler/testData/codegen/box/closures")
+    @InnerTestClasses({Closures.ClosureInsideClosure.class})
     public static class Closures extends AbstractBlackBoxCodegenTest {
         public void testAllFilesPresentInClosures() throws Exception {
             JetTestUtils.assertAllTestsPresentByMetadata(this.getClass(), "org.jetbrains.jet.generators.tests.GenerateTests", new File("compiler/testData/codegen/box/closures"), "kt", true);
@@ -943,6 +944,45 @@ public class BlackBoxCodegenTestGenerated extends AbstractBlackBoxCodegenTest {
             blackBoxFileByFullPath("compiler/testData/codegen/box/closures/simplestClosureAndBoxing.kt");
         }
         
+        @TestMetadata("compiler/testData/codegen/box/closures/closureInsideClosure")
+        public static class ClosureInsideClosure extends AbstractBlackBoxCodegenTest {
+            public void testAllFilesPresentInClosureInsideClosure() throws Exception {
+                JetTestUtils.assertAllTestsPresentByMetadata(this.getClass(), "org.jetbrains.jet.generators.tests.GenerateTests", new File("compiler/testData/codegen/box/closures/closureInsideClosure"), "kt", true);
+            }
+            
+            @TestMetadata("localFunInsideLocalFun.kt")
+            public void testLocalFunInsideLocalFun() throws Exception {
+                blackBoxFileByFullPath("compiler/testData/codegen/box/closures/closureInsideClosure/localFunInsideLocalFun.kt");
+            }
+            
+            @TestMetadata("localFunInsideLocalFunDifferentSignatures.kt")
+            public void testLocalFunInsideLocalFunDifferentSignatures() throws Exception {
+                blackBoxFileByFullPath("compiler/testData/codegen/box/closures/closureInsideClosure/localFunInsideLocalFunDifferentSignatures.kt");
+            }
+            
+            @TestMetadata("threeLevels.kt")
+            public void testThreeLevels() throws Exception {
+                blackBoxFileByFullPath("compiler/testData/codegen/box/closures/closureInsideClosure/threeLevels.kt");
+            }
+            
+            @TestMetadata("threeLevelsDifferentSignatures.kt")
+            public void testThreeLevelsDifferentSignatures() throws Exception {
+                blackBoxFileByFullPath("compiler/testData/codegen/box/closures/closureInsideClosure/threeLevelsDifferentSignatures.kt");
+            }
+            
+            @TestMetadata("varAsFunInsideLocalFun.kt")
+            public void testVarAsFunInsideLocalFun() throws Exception {
+                blackBoxFileByFullPath("compiler/testData/codegen/box/closures/closureInsideClosure/varAsFunInsideLocalFun.kt");
+            }
+            
+        }
+        
+        public static Test innerSuite() {
+            TestSuite suite = new TestSuite("Closures");
+            suite.addTestSuite(Closures.class);
+            suite.addTestSuite(ClosureInsideClosure.class);
+            return suite;
+        }
     }
     
     @TestMetadata("compiler/testData/codegen/box/controlStructures")
@@ -3306,7 +3346,7 @@ public class BlackBoxCodegenTestGenerated extends AbstractBlackBoxCodegenTest {
         suite.addTestSuite(Bridges.class);
         suite.addTestSuite(Casts.class);
         suite.addTestSuite(Classes.class);
-        suite.addTestSuite(Closures.class);
+        suite.addTest(Closures.innerSuite());
         suite.addTestSuite(ControlStructures.class);
         suite.addTest(DefaultArguments.innerSuite());
         suite.addTestSuite(Enum.class);