diff --git a/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/Errors.java b/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/Errors.java
index ecbd2080908..4aa4bc17ad4 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/Errors.java
+++ b/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/Errors.java
@@ -118,7 +118,7 @@ public interface Errors {
     DiagnosticFactory0<KtTypeParameterList> GENERIC_THROWABLE_SUBCLASS = DiagnosticFactory0.create(ERROR);
 
     DiagnosticFactory0<PsiElement> UNSUPPORTED_TYPEALIAS = DiagnosticFactory0.create(ERROR);
-    DiagnosticFactory1<KtUserType, ClassifierDescriptor> RECURSIVE_TYPEALIAS_EXPANSION = DiagnosticFactory1.create(ERROR);
+    DiagnosticFactory1<KtElement, ClassifierDescriptor> RECURSIVE_TYPEALIAS_EXPANSION = DiagnosticFactory1.create(ERROR);
     DiagnosticFactory3<KtElement, KotlinType, KotlinType, ClassifierDescriptor> UPPER_BOUND_VIOLATED_IN_TYPEALIAS_EXPANSION =
             DiagnosticFactory3.create(ERROR);
     DiagnosticFactory1<KtElement, KotlinType> CONFLICTING_PROJECTION_IN_TYPEALIAS_EXPANSION = DiagnosticFactory1.create(ERROR);
diff --git a/compiler/frontend/src/org/jetbrains/kotlin/resolve/DeclarationsChecker.kt b/compiler/frontend/src/org/jetbrains/kotlin/resolve/DeclarationsChecker.kt
index 4ddcd7971ff..6dea0a8c3ea 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/resolve/DeclarationsChecker.kt
+++ b/compiler/frontend/src/org/jetbrains/kotlin/resolve/DeclarationsChecker.kt
@@ -22,6 +22,7 @@ import com.intellij.psi.PsiElement
 import org.jetbrains.kotlin.builtins.KotlinBuiltIns
 import org.jetbrains.kotlin.config.LanguageFeatureSettings
 import org.jetbrains.kotlin.descriptors.*
+import org.jetbrains.kotlin.descriptors.annotations.Annotations
 import org.jetbrains.kotlin.diagnostics.DiagnosticFactory0
 import org.jetbrains.kotlin.diagnostics.Errors
 import org.jetbrains.kotlin.diagnostics.Errors.*
@@ -151,6 +152,8 @@ class DeclarationsChecker(
     private fun checkTypeAliasDeclaration(typeAliasDescriptor: TypeAliasDescriptor, declaration: KtTypeAlias) {
         val typeReference = declaration.getTypeReference() ?: return
 
+        checkTypeAliasExpansion(typeAliasDescriptor, declaration)
+
         val expandedType = typeAliasDescriptor.expandedType // TODO refactor type alias expansion
         if (expandedType.isError) return
 
@@ -161,6 +164,40 @@ class DeclarationsChecker(
         }
     }
 
+    private class TypeAliasDeclarationCheckingReportStrategy(
+            private val trace: BindingTrace,
+            typeAliasDescriptor: TypeAliasDescriptor,
+            declaration: KtTypeAlias
+    ) : TypeAliasExpansionReportStrategy {
+        private val typeReference = declaration.getTypeReference()
+                                    ?: throw AssertionError("Incorrect type alias declaration for $typeAliasDescriptor")
+
+        override fun wrongNumberOfTypeArguments(typeAlias: TypeAliasDescriptor, numberOfParameters: Int) {
+            // Do nothing: this should've been reported during type resolution.
+        }
+
+        override fun conflictingProjection(typeAlias: TypeAliasDescriptor, typeParameter: TypeParameterDescriptor?, substitutedArgument: KotlinType) {
+            trace.report(CONFLICTING_PROJECTION_IN_TYPEALIAS_EXPANSION.on(typeReference, substitutedArgument))
+        }
+
+        override fun recursiveTypeAlias(typeAlias: TypeAliasDescriptor) {
+            trace.report(RECURSIVE_TYPEALIAS_EXPANSION.on(typeReference, typeAlias))
+        }
+
+        override fun boundsViolationInSubstitution(bound: KotlinType, unsubstitutedArgument: KotlinType, argument: KotlinType, typeParameter: TypeParameterDescriptor) {
+            // TODO more precise diagnostics
+            if (!argument.dependsOnTypeAliasParameters() && !bound.dependsOnTypeAliasParameters()) {
+                trace.report(UPPER_BOUND_VIOLATED_IN_TYPEALIAS_EXPANSION.on(typeReference, bound, argument, typeParameter))
+            }
+        }
+    }
+
+    private fun checkTypeAliasExpansion(typeAliasDescriptor: TypeAliasDescriptor, declaration: KtTypeAlias) {
+        val typeAliasExpansion = TypeAliasExpansion.createWithFormalArguments(typeAliasDescriptor)
+        val reportStrategy = TypeAliasDeclarationCheckingReportStrategy(trace, typeAliasDescriptor, declaration)
+        TypeAliasExpander(reportStrategy).expandWithoutAbbreviation(typeAliasExpansion, Annotations.EMPTY)
+    }
+
     private fun checkConstructorDeclaration(constructorDescriptor: ConstructorDescriptor, declaration: KtDeclaration) {
         declaration.checkTypeReferences()
         modifiersChecker.checkModifiersForDeclaration(declaration, constructorDescriptor)
diff --git a/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeAliasExpander.kt b/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeAliasExpander.kt
index a52e32bfa55..5e01e42d82d 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeAliasExpander.kt
+++ b/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeAliasExpander.kt
@@ -96,7 +96,7 @@ class TypeAliasExpander(
                     argumentVariance
                 else {
                     if (originalVariance != argumentVariance && !typeAliasArgument.isStarProjection) {
-                        reportStrategy.conflictingProjection(typeAliasExpansion.descriptor, typeParameterDescriptor, originalType)
+                        reportStrategy.conflictingProjection(typeAliasExpansion.descriptor, typeParameterDescriptor, typeAliasArgument.type)
                     }
                     argumentVariance
                 }
diff --git a/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeAliasExpansionReportStrategy.kt b/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeAliasExpansionReportStrategy.kt
index 26aa83cc0a8..99325cb491a 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeAliasExpansionReportStrategy.kt
+++ b/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeAliasExpansionReportStrategy.kt
@@ -22,13 +22,13 @@ import org.jetbrains.kotlin.types.KotlinType
 
 interface TypeAliasExpansionReportStrategy {
     fun wrongNumberOfTypeArguments(typeAlias: TypeAliasDescriptor, numberOfParameters: Int)
-    fun conflictingProjection(typeAlias: TypeAliasDescriptor, typeParameter: TypeParameterDescriptor?, expandingType: KotlinType)
+    fun conflictingProjection(typeAlias: TypeAliasDescriptor, typeParameter: TypeParameterDescriptor?, substitutedArgument: KotlinType)
     fun recursiveTypeAlias(typeAlias: TypeAliasDescriptor)
     fun boundsViolationInSubstitution(bound: KotlinType, unsubstitutedArgument: KotlinType, argument: KotlinType, typeParameter: TypeParameterDescriptor)
 
     object DO_NOTHING : TypeAliasExpansionReportStrategy {
         override fun wrongNumberOfTypeArguments(typeAlias: TypeAliasDescriptor, numberOfParameters: Int) {}
-        override fun conflictingProjection(typeAlias: TypeAliasDescriptor, typeParameter: TypeParameterDescriptor?, expandingType: KotlinType) {}
+        override fun conflictingProjection(typeAlias: TypeAliasDescriptor, typeParameter: TypeParameterDescriptor?, substitutedArgument: KotlinType) {}
         override fun recursiveTypeAlias(typeAlias: TypeAliasDescriptor) {}
         override fun boundsViolationInSubstitution(bound: KotlinType, unsubstitutedArgument: KotlinType, argument: KotlinType, typeParameter: TypeParameterDescriptor) {}
     }
diff --git a/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeResolver.kt b/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeResolver.kt
index 5a38c558c82..67344716e15 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeResolver.kt
+++ b/compiler/frontend/src/org/jetbrains/kotlin/resolve/TypeResolver.kt
@@ -400,14 +400,12 @@ class TypeResolver(
         // This is not intended to be used in normal users' environments, only for tests and debugger etc
         typeTransformerForTests.transformType(resultingType)?.let { return type(it) }
 
-        if (c.checkBounds) {
+        if (c.checkBounds && !resultingType.dependsOnTypeAliasParameters()) {
             val substitutor = TypeSubstitutor.create(resultingType)
             for (i in parameters.indices) {
                 val parameter = parameters[i]
                 val argument = arguments[i].type
 
-                if (argument.dependsOnTypeAliasParameters()) continue
-
                 val typeReference = collectedArgumentAsTypeProjections.getOrNull(i)?.typeReference
 
                 if (typeReference != null) {
@@ -495,7 +493,7 @@ class TypeResolver(
             }
         }
 
-        override fun conflictingProjection(typeAlias: TypeAliasDescriptor, typeParameter: TypeParameterDescriptor?, expandingType: KotlinType) {
+        override fun conflictingProjection(typeAlias: TypeAliasDescriptor, typeParameter: TypeParameterDescriptor?, substitutedArgument: KotlinType) {
             val argumentElement = typeParameter?.let { mappedArguments[it] }
             if (argumentElement != null && typeParameter != null) {
                 trace.report(CONFLICTING_PROJECTION.on(argumentElement, typeParameter))
diff --git a/compiler/frontend/src/org/jetbrains/kotlin/resolve/calls/CandidateResolver.kt b/compiler/frontend/src/org/jetbrains/kotlin/resolve/calls/CandidateResolver.kt
index b9174bd3ca2..62eade94064 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/resolve/calls/CandidateResolver.kt
+++ b/compiler/frontend/src/org/jetbrains/kotlin/resolve/calls/CandidateResolver.kt
@@ -595,16 +595,23 @@ class CandidateResolver(
             ktTypeArguments: List<KtTypeProjection>,
             private val trace: BindingTrace
     ) : TypeAliasExpansionReportStrategy {
+        init {
+            assert(!typeAlias.expandedType.isError) { "Incorrect type alias: $typeAlias" }
+        }
+
         private val argumentsMapping = typeAlias.declaredTypeParameters.zip(ktTypeArguments).toMap()
 
         override fun wrongNumberOfTypeArguments(typeAlias: TypeAliasDescriptor, numberOfParameters: Int) {
+            // TODO
         }
 
-        override fun conflictingProjection(typeAlias: TypeAliasDescriptor, typeParameter: TypeParameterDescriptor?, expandingType: KotlinType) {
-            // No projections in type alias constructor arguments - can't happen
+        override fun conflictingProjection(typeAlias: TypeAliasDescriptor, typeParameter: TypeParameterDescriptor?, substitutedArgument: KotlinType) {
+            // TODO
         }
 
-        override fun recursiveTypeAlias(typeAlias: TypeAliasDescriptor) {}
+        override fun recursiveTypeAlias(typeAlias: TypeAliasDescriptor) {
+            // can't happen in non-error type
+        }
 
         override fun boundsViolationInSubstitution(bound: KotlinType, unsubstitutedArgument: KotlinType, argument: KotlinType, typeParameter: TypeParameterDescriptor) {
             val descriptorForUnsubstitutedArgument = unsubstitutedArgument.constructor.declarationDescriptor
diff --git a/compiler/testData/diagnostics/tests/typealias/boundsViolationInTypeAliasRHS.kt b/compiler/testData/diagnostics/tests/typealias/boundsViolationInTypeAliasRHS.kt
index 003d367dc6a..d8f638d808d 100644
--- a/compiler/testData/diagnostics/tests/typealias/boundsViolationInTypeAliasRHS.kt
+++ b/compiler/testData/diagnostics/tests/typealias/boundsViolationInTypeAliasRHS.kt
@@ -1,12 +1,20 @@
 // !DIAGNOSTICS: -UNUSED_VARIABLE -UNUSED_PARAMETER
 
-class TColl<T, C : Collection<T>>
+class TC<T, C : Collection<T>>
 
-typealias TCErr = TColl<String, <!UPPER_BOUND_VIOLATED!>Any<!>>
-typealias TCErr2 = TCErr
+typealias TCAlias<T, C> = TC<T, C>
+typealias TCAliasT<T> = TC<T, Any>
+typealias TCAliasC<C> = TC<Any, C>
+typealias TCAliasT1<T> = TCAlias<T, Any>
+typealias TCAliasC1<C> = TCAlias<Any, C>
 
-fun testType1(x: TCErr) {}
-val testCtor1 = <!UPPER_BOUND_VIOLATED_IN_TYPEALIAS_EXPANSION!>TCErr()<!>
-
-fun testType2(x: TCErr2) {}
-val testCtor2 = <!UPPER_BOUND_VIOLATED_IN_TYPEALIAS_EXPANSION!>TCErr2()<!>
+typealias Test1 = TC<Any, <!UPPER_BOUND_VIOLATED!>Any<!>>
+typealias Test2 = TC<Any, Collection<Any>>
+typealias Test3 = <!UPPER_BOUND_VIOLATED_IN_TYPEALIAS_EXPANSION!>TCAlias<Any, Any><!>
+typealias Test4 = TCAlias<Any, Collection<Any>>
+typealias Test5 = <!UPPER_BOUND_VIOLATED_IN_TYPEALIAS_EXPANSION!>TCAliasT<Any><!>
+typealias Test6 = <!UPPER_BOUND_VIOLATED_IN_TYPEALIAS_EXPANSION!>TCAliasC<Any><!>
+typealias Test7 = TCAliasC<Collection<Any>>
+typealias Test8 = <!UPPER_BOUND_VIOLATED_IN_TYPEALIAS_EXPANSION!>TCAliasT1<Any><!>
+typealias Test9 = <!UPPER_BOUND_VIOLATED_IN_TYPEALIAS_EXPANSION!>TCAliasC1<Any><!>
+typealias Test10 = TCAliasC1<Collection<Any>>
diff --git a/compiler/testData/diagnostics/tests/typealias/boundsViolationInTypeAliasRHS.txt b/compiler/testData/diagnostics/tests/typealias/boundsViolationInTypeAliasRHS.txt
index f0f04412d92..abde87661f8 100644
--- a/compiler/testData/diagnostics/tests/typealias/boundsViolationInTypeAliasRHS.txt
+++ b/compiler/testData/diagnostics/tests/typealias/boundsViolationInTypeAliasRHS.txt
@@ -1,14 +1,23 @@
 package
 
-public typealias TCErr = TColl<kotlin.String, kotlin.Any>
-public typealias TCErr2 = TCErr
-public val testCtor1: TColl<kotlin.String, kotlin.Any>
-public val testCtor2: TColl<kotlin.String, kotlin.Any>
-public fun testType1(/*0*/ x: TCErr [= TColl<kotlin.String, kotlin.Any>]): kotlin.Unit
-public fun testType2(/*0*/ x: TCErr2 [= TColl<kotlin.String, kotlin.Any>]): kotlin.Unit
+public typealias TCAlias</*0*/ T, /*1*/ C>  = TC<T, C>
+public typealias TCAliasC</*0*/ C>  = TC<kotlin.Any, C>
+public typealias TCAliasC1</*0*/ C>  = TCAlias<kotlin.Any, C>
+public typealias TCAliasT</*0*/ T>  = TC<T, kotlin.Any>
+public typealias TCAliasT1</*0*/ T>  = TCAlias<T, kotlin.Any>
+public typealias Test1 = TC<kotlin.Any, kotlin.Any>
+public typealias Test10 = TCAliasC1<kotlin.collections.Collection<kotlin.Any>>
+public typealias Test2 = TC<kotlin.Any, kotlin.collections.Collection<kotlin.Any>>
+public typealias Test3 = TCAlias<kotlin.Any, kotlin.Any>
+public typealias Test4 = TCAlias<kotlin.Any, kotlin.collections.Collection<kotlin.Any>>
+public typealias Test5 = TCAliasT<kotlin.Any>
+public typealias Test6 = TCAliasC<kotlin.Any>
+public typealias Test7 = TCAliasC<kotlin.collections.Collection<kotlin.Any>>
+public typealias Test8 = TCAliasT1<kotlin.Any>
+public typealias Test9 = TCAliasC1<kotlin.Any>
 
-public final class TColl</*0*/ T, /*1*/ C : kotlin.collections.Collection<T>> {
-    public constructor TColl</*0*/ T, /*1*/ C : kotlin.collections.Collection<T>>()
+public final class TC</*0*/ T, /*1*/ C : kotlin.collections.Collection<T>> {
+    public constructor TC</*0*/ T, /*1*/ C : kotlin.collections.Collection<T>>()
     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/typealias/conflictingProjections.kt b/compiler/testData/diagnostics/tests/typealias/conflictingProjections.kt
new file mode 100644
index 00000000000..c744a0af056
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/typealias/conflictingProjections.kt
@@ -0,0 +1,16 @@
+// !DIAGNOSTICS: -UNUSED_VARIABLE -UNUSED_PARAMETER
+
+interface In<in T>
+interface Out<out T>
+
+typealias InAlias<T> = In<T>
+typealias OutAlias<T> = Out<T>
+
+typealias TestOutForIn<T> = In<<!CONFLICTING_PROJECTION!>out<!> T>
+typealias TestInForOut<T> = Out<<!CONFLICTING_PROJECTION!>in<!> T>
+
+typealias TestOutForInWithinAlias<T> = <!CONFLICTING_PROJECTION_IN_TYPEALIAS_EXPANSION!>InAlias<out T><!>
+typealias TestInForOutWithinAlias<T> = <!CONFLICTING_PROJECTION_IN_TYPEALIAS_EXPANSION!>OutAlias<in T><!>
+
+fun <T> testOutForInWithinResolvedType(x: <!CONFLICTING_PROJECTION_IN_TYPEALIAS_EXPANSION!>InAlias<out T><!>) {}
+fun <T> testInForOutWithinResolvedType(x: <!CONFLICTING_PROJECTION_IN_TYPEALIAS_EXPANSION!>OutAlias<in T><!>) {}
diff --git a/compiler/testData/diagnostics/tests/typealias/conflictingProjections.txt b/compiler/testData/diagnostics/tests/typealias/conflictingProjections.txt
new file mode 100644
index 00000000000..646157b019b
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/typealias/conflictingProjections.txt
@@ -0,0 +1,22 @@
+package
+
+public typealias InAlias</*0*/ T>  = In<T>
+public typealias OutAlias</*0*/ T>  = Out<T>
+public typealias TestInForOut</*0*/ T>  = Out<in T>
+public typealias TestInForOutWithinAlias</*0*/ T>  = OutAlias<in T>
+public typealias TestOutForIn</*0*/ T>  = In<out T>
+public typealias TestOutForInWithinAlias</*0*/ T>  = InAlias<out T>
+public fun </*0*/ T> testInForOutWithinResolvedType(/*0*/ x: OutAlias<in T> [= Out<in T>]): kotlin.Unit
+public fun </*0*/ T> testOutForInWithinResolvedType(/*0*/ x: InAlias<out T> [= In<out T>]): kotlin.Unit
+
+public interface In</*0*/ in T> {
+    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
+}
+
+public interface Out</*0*/ out T> {
+    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/typealias/recursive.kt b/compiler/testData/diagnostics/tests/typealias/recursive.kt
index d64150b2e15..97ea09f10ee 100644
--- a/compiler/testData/diagnostics/tests/typealias/recursive.kt
+++ b/compiler/testData/diagnostics/tests/typealias/recursive.kt
@@ -1,4 +1,4 @@
-typealias A = B
-typealias B = A
+typealias A = <!RECURSIVE_TYPEALIAS_EXPANSION!>B<!>
+typealias B = <!RECURSIVE_TYPEALIAS_EXPANSION!>A<!>
 
 val x: <!RECURSIVE_TYPEALIAS_EXPANSION!>A<!> = TODO()
\ No newline at end of file
diff --git a/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java b/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java
index 5610acd614d..b9e7b027aca 100644
--- a/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java
+++ b/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java
@@ -19443,6 +19443,12 @@ public class DiagnosticsTestGenerated extends AbstractDiagnosticsTest {
                 doTest(fileName);
             }
 
+            @TestMetadata("conflictingProjections.kt")
+            public void testConflictingProjections() throws Exception {
+                String fileName = KotlinTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/typealias/conflictingProjections.kt");
+                doTest(fileName);
+            }
+
             @TestMetadata("functionTypeInTypeAlias.kt")
             public void testFunctionTypeInTypeAlias() throws Exception {
                 String fileName = KotlinTestUtils.navigationMetadata("compiler/testData/diagnostics/tests/typealias/functionTypeInTypeAlias.kt");