diff --git a/compiler/fir/analysis-tests/tests/org/jetbrains/kotlin/fir/FirOldFrontendDiagnosticsTestGenerated.java b/compiler/fir/analysis-tests/tests/org/jetbrains/kotlin/fir/FirOldFrontendDiagnosticsTestGenerated.java
index 7b46cd11983..085d7462dbf 100644
--- a/compiler/fir/analysis-tests/tests/org/jetbrains/kotlin/fir/FirOldFrontendDiagnosticsTestGenerated.java
+++ b/compiler/fir/analysis-tests/tests/org/jetbrains/kotlin/fir/FirOldFrontendDiagnosticsTestGenerated.java
@@ -8195,6 +8195,11 @@ public class FirOldFrontendDiagnosticsTestGenerated extends AbstractFirOldFronte
             runTest("compiler/testData/diagnostics/tests/functionLiterals/lambdaInLambda2.kt");
         }
 
+        @TestMetadata("missedTypeMismatch.kt")
+        public void testMissedTypeMismatch() throws Exception {
+            runTest("compiler/testData/diagnostics/tests/functionLiterals/missedTypeMismatch.kt");
+        }
+
         @TestMetadata("prematurelyAnalyzingLambdaWhileFixingTypeVariableForAnotherArgument.kt")
         public void testPrematurelyAnalyzingLambdaWhileFixingTypeVariableForAnotherArgument() throws Exception {
             runTest("compiler/testData/diagnostics/tests/functionLiterals/prematurelyAnalyzingLambdaWhileFixingTypeVariableForAnotherArgument.kt");
diff --git a/compiler/frontend/src/org/jetbrains/kotlin/types/expressions/FunctionsTypingVisitor.kt b/compiler/frontend/src/org/jetbrains/kotlin/types/expressions/FunctionsTypingVisitor.kt
index e0311c1497b..323faf5f2e3 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/types/expressions/FunctionsTypingVisitor.kt
+++ b/compiler/frontend/src/org/jetbrains/kotlin/types/expressions/FunctionsTypingVisitor.kt
@@ -26,7 +26,6 @@ import org.jetbrains.kotlin.resolve.BindingContext.EXPECTED_RETURN_TYPE
 import org.jetbrains.kotlin.resolve.calls.context.ContextDependency
 import org.jetbrains.kotlin.resolve.calls.inference.model.TypeVariableTypeConstructor
 import org.jetbrains.kotlin.resolve.checkers.TrailingCommaChecker
-import org.jetbrains.kotlin.resolve.checkers.TrailingCommaDeclarationChecker
 import org.jetbrains.kotlin.resolve.checkers.UnderscoreChecker
 import org.jetbrains.kotlin.resolve.lazy.ForceResolveUtil
 import org.jetbrains.kotlin.resolve.scopes.LexicalWritableScope
@@ -116,17 +115,35 @@ internal class FunctionsTypingVisitor(facade: ExpressionTypingInternals) : Expre
         return if (isDeclaration) {
             createTypeInfo(components.dataFlowAnalyzer.checkStatementType(function, context), context)
         } else {
-            val expectedType = context.expectedType
-
-            val functionalTypeExpected = expectedType.isBuiltinFunctionalType()
+            val newInferenceEnabled = components.languageVersionSettings.supportsFeature(LanguageFeature.NewInference)
 
             // We forbid anonymous function expressions to suspend type coercion for now, until `suspend fun` syntax is supported
-            val resultType = functionDescriptor.createFunctionType(components.builtIns, suspendFunction = false)
+            val resultType = functionDescriptor.createFunctionType(
+                components.builtIns,
+                suspendFunction = false
+            )
 
-            if (components.languageVersionSettings.supportsFeature(LanguageFeature.NewInference) && functionalTypeExpected && !expectedType.isSuspendFunctionType)
+            if (newInferenceEnabled) {
+                // We should avoid type checking for types containing `NO_EXPECTED_TYPE`, the error will be report later if needed
+                if (!context.expectedType.contains { it === NO_EXPECTED_TYPE }) {
+                    /*
+                     * We do type checking without converted vararg type as the new inference create expected type with raw vararg type (see KotlinResolutionCallbacksImpl.kt)
+                     * Example:
+                     *      fun foo(x: Any?) {}
+                     *      val x = foo(fun(vararg p: Int) {})
+                     *      In NI, context.expectedType = `Function1<Int, Unit>`
+                     */
+                    val typeToTypeCheck = functionDescriptor.createFunctionType(
+                        components.builtIns,
+                        suspendFunction = false,
+                        shouldUseVarargType = true
+                    )
+                    components.dataFlowAnalyzer.checkType(typeToTypeCheck, function, context)
+                }
                 createTypeInfo(resultType, context)
-            else
+            } else {
                 components.dataFlowAnalyzer.createCheckedTypeInfo(resultType, context, function)
+            }
         }
     }
 
@@ -370,12 +387,16 @@ internal class FunctionsTypingVisitor(facade: ExpressionTypingInternals) : Expre
     }
 }
 
-fun SimpleFunctionDescriptor.createFunctionType(builtIns: KotlinBuiltIns, suspendFunction: Boolean = false): KotlinType? {
+fun SimpleFunctionDescriptor.createFunctionType(
+    builtIns: KotlinBuiltIns,
+    suspendFunction: Boolean = false,
+    shouldUseVarargType: Boolean = false
+): KotlinType? {
     return createFunctionType(
         builtIns,
         Annotations.EMPTY,
         extensionReceiverParameter?.type,
-        valueParameters.map { it.type },
+        if (shouldUseVarargType) valueParameters.map { it.varargElementType ?: it.type } else valueParameters.map { it.type },
         null,
         returnType ?: return null,
         suspendFunction = suspendFunction
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/FunctionType.kt b/compiler/testData/diagnostics/tests/functionAsExpression/FunctionType.kt
index 024f02028d2..fe07efb7534 100644
--- a/compiler/testData/diagnostics/tests/functionAsExpression/FunctionType.kt
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/FunctionType.kt
@@ -9,7 +9,7 @@ fun testReturnType(foo: String) {
 
     val bas: () -> String = fun () = foo
 
-    val bag: () -> Int = <!OI;TYPE_MISMATCH!>fun () = foo<!>
+    val bag: () -> Int = <!TYPE_MISMATCH!>fun () = foo<!>
 }
 
 fun testParamType() {
@@ -18,7 +18,7 @@ fun testParamType() {
     bar.checkType { _<(String) -> Unit>() }
 
     val bas: (String) -> Unit = fun (param: String) {}
-    val bag: (Int) -> Unit = <!OI;TYPE_MISMATCH!>fun (<!EXPECTED_PARAMETER_TYPE_MISMATCH!>param: String<!>) {}<!>
+    val bag: (Int) -> Unit = <!TYPE_MISMATCH!>fun (<!EXPECTED_PARAMETER_TYPE_MISMATCH!>param: String<!>) {}<!>
 }
 
 fun testReceiverType() {
@@ -28,5 +28,5 @@ fun testReceiverType() {
 
     val bas: String.() -> Unit = fun String.() {}
 
-    val bag: Int.() -> Unit = <!OI;TYPE_MISMATCH!>fun String.() {}<!>
+    val bag: Int.() -> Unit = <!TYPE_MISMATCH!>fun String.() {}<!>
 }
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/InferenceParametersTypes.kt b/compiler/testData/diagnostics/tests/functionAsExpression/InferenceParametersTypes.kt
index b458f865a91..0fce1feccb1 100644
--- a/compiler/testData/diagnostics/tests/functionAsExpression/InferenceParametersTypes.kt
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/InferenceParametersTypes.kt
@@ -17,4 +17,4 @@ fun test2(a: () -> List<Int>) {
 
 val a: (Int) -> Unit = fun(x) { checkSubtype<Int>(x) }
 
-val b: (Int) -> Unit = <!OI;TYPE_MISMATCH!>fun(<!EXPECTED_PARAMETER_TYPE_MISMATCH!>x: String<!>) {}<!>
\ No newline at end of file
+val b: (Int) -> Unit = <!TYPE_MISMATCH!>fun(<!EXPECTED_PARAMETER_TYPE_MISMATCH!>x: String<!>) {}<!>
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/MissingParameterTypes.kt b/compiler/testData/diagnostics/tests/functionAsExpression/MissingParameterTypes.kt
index 442c7f3c2a2..2a4e5fbf600 100644
--- a/compiler/testData/diagnostics/tests/functionAsExpression/MissingParameterTypes.kt
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/MissingParameterTypes.kt
@@ -6,22 +6,22 @@ val a = fun (<!CANNOT_INFER_PARAMETER_TYPE!>x<!>) = <!DEBUG_INFO_ELEMENT_WITH_ER
 
 val b: (Int) -> Int = fun (x) = x + 3
 
-val c: (Int, String) -> Int = <!OI;TYPE_MISMATCH!>fun <!EXPECTED_PARAMETERS_NUMBER_MISMATCH!>(x)<!> = 3<!>
+val c: (Int, String) -> Int = <!TYPE_MISMATCH!>fun <!EXPECTED_PARAMETERS_NUMBER_MISMATCH!>(x)<!> = 3<!>
 
-val d: (Int, String) -> Int = <!OI;TYPE_MISMATCH!>fun <!EXPECTED_PARAMETERS_NUMBER_MISMATCH!>(x)<!> = 3<!>
+val d: (Int, String) -> Int = <!TYPE_MISMATCH!>fun <!EXPECTED_PARAMETERS_NUMBER_MISMATCH!>(x)<!> = 3<!>
 
-val e: (Int, String) -> Int = <!OI;TYPE_MISMATCH!>fun <!EXPECTED_PARAMETERS_NUMBER_MISMATCH!>(<!EXPECTED_PARAMETER_TYPE_MISMATCH!>x: String<!>)<!> = 3<!>
+val e: (Int, String) -> Int = <!TYPE_MISMATCH!>fun <!EXPECTED_PARAMETERS_NUMBER_MISMATCH!>(<!EXPECTED_PARAMETER_TYPE_MISMATCH!>x: String<!>)<!> = 3<!>
 
-val f: (Int) -> Int = <!OI;TYPE_MISMATCH!>fun (<!EXPECTED_PARAMETER_TYPE_MISMATCH!>x: String<!>) = 3<!>
+val f: (Int) -> Int = <!TYPE_MISMATCH!>fun (<!EXPECTED_PARAMETER_TYPE_MISMATCH!>x: String<!>) = 3<!>
 
 fun test1(a: (Int) -> Unit) {
     test1(fun (x) { checkSubtype<Int>(x)})
 }
 
 fun test2(a: (Int) -> Unit) {
-    test2(<!TYPE_MISMATCH!>fun (<!EXPECTED_PARAMETER_TYPE_MISMATCH!>x: String<!>) {}<!>)
+    test2(<!NI;TYPE_MISMATCH, TYPE_MISMATCH!>fun (<!EXPECTED_PARAMETER_TYPE_MISMATCH!>x: String<!>) {}<!>)
 }
 
 fun test3(a: (Int, String) -> Unit) {
-    test3(<!TYPE_MISMATCH!>fun <!EXPECTED_PARAMETERS_NUMBER_MISMATCH!>(<!EXPECTED_PARAMETER_TYPE_MISMATCH!>x: String<!>)<!> {}<!>)
+    test3(<!NI;TYPE_MISMATCH, TYPE_MISMATCH!>fun <!EXPECTED_PARAMETERS_NUMBER_MISMATCH!>(<!EXPECTED_PARAMETER_TYPE_MISMATCH!>x: String<!>)<!> {}<!>)
 }
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/functionAsExpression/ReceiverByExpectedType.kt b/compiler/testData/diagnostics/tests/functionAsExpression/ReceiverByExpectedType.kt
index 14ddcad79dc..f517152c8f1 100644
--- a/compiler/testData/diagnostics/tests/functionAsExpression/ReceiverByExpectedType.kt
+++ b/compiler/testData/diagnostics/tests/functionAsExpression/ReceiverByExpectedType.kt
@@ -1,3 +1,3 @@
 // !WITH_NEW_INFERENCE
 fun foo(<!UNUSED_PARAMETER!>f<!>: String.() -> Int) {}
-val test = foo(<!NI;TYPE_MISMATCH, TYPE_MISMATCH!>fun <!NI;EXPECTED_PARAMETERS_NUMBER_MISMATCH!>()<!> = <!UNRESOLVED_REFERENCE!>length<!><!>)
\ No newline at end of file
+val test = foo(<!NI;TYPE_MISMATCH, NI;TYPE_MISMATCH, TYPE_MISMATCH!>fun <!NI;EXPECTED_PARAMETERS_NUMBER_MISMATCH!>()<!> = <!UNRESOLVED_REFERENCE!>length<!><!>)
\ No newline at end of file
diff --git a/compiler/testData/diagnostics/tests/functionLiterals/ExpectedParameterTypeMismatchVariance.kt b/compiler/testData/diagnostics/tests/functionLiterals/ExpectedParameterTypeMismatchVariance.kt
index 36d113e6f6f..2bf2645eee8 100644
--- a/compiler/testData/diagnostics/tests/functionLiterals/ExpectedParameterTypeMismatchVariance.kt
+++ b/compiler/testData/diagnostics/tests/functionLiterals/ExpectedParameterTypeMismatchVariance.kt
@@ -16,6 +16,6 @@ fun test(s: Sub) {
         t: Trait -> s
     }
 
-    foo(<!TYPE_MISMATCH!>fun(<!EXPECTED_PARAMETER_TYPE_MISMATCH!>t: Sub<!>) = s<!>)
+    foo(<!NI;TYPE_MISMATCH, TYPE_MISMATCH!>fun(<!EXPECTED_PARAMETER_TYPE_MISMATCH!>t: Sub<!>) = s<!>)
     foo(<!TYPE_MISMATCH!>fun(t): Super = s<!>)
 }
diff --git a/compiler/testData/diagnostics/tests/functionLiterals/missedTypeMismatch.fir.kt b/compiler/testData/diagnostics/tests/functionLiterals/missedTypeMismatch.fir.kt
new file mode 100644
index 00000000000..21c7540c3c1
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionLiterals/missedTypeMismatch.fir.kt
@@ -0,0 +1,40 @@
+// !DIAGNOSTICS: -UNUSED_VARIABLE -UNUSED_PARAMETER -UNUSED_ANONYMOUS_PARAMETER -UNCHECKED_CAST
+// Issues: KT-38890, KT-38439
+
+fun foo(x: () -> Int) {}
+
+fun <T>id(x: T) = x
+
+// Before the fix, there wasn't any type mismatch error in NI due to result type not being a subtype of expected type
+fun main() {
+    val x: () -> Int = { "" }
+
+    val a0: () -> Int = fun(): String = "1"
+    val a1: () -> Int = (fun() = "1")
+    val a2: () -> Unit = (fun() = "1")
+    val a3: Unit = (fun() = "1")
+    val a4 = (fun() = "1")
+    val a5 = (fun(): String = "1")
+    val a6: () -> Int = (fun() = 1)
+    val a7: () -> Int = (fun(): String = "1") as () -> Int
+    val a8: () -> Int = fun(): String = "1"
+    val a9: () -> () -> () -> Int = fun(): () -> () -> String = fun(): () -> String = fun(): String = "1"
+
+    <!INAPPLICABLE_CANDIDATE!>foo<!>(fun(): String = "1")
+    <!INAPPLICABLE_CANDIDATE!>foo<!>(((fun(): String = "1")))
+
+    val a10: Int.(String) -> Int = fun (x: String) = 10
+    val a11: () -> () -> () -> Int = fun() = fun() = fun(): String = "1"
+
+    val a12: Int = fun(): String = "1"
+    val a13: Int = fun() = fun(): String = "1"
+    val a14: Int = fun() = fun() = "1"
+    val a15: Int = fun() = fun() = {}
+    val a16: Int = fun() = fun() {}
+
+    val a17: () -> Unit = fun() {}
+    val a18: () -> Int = fun() {}
+    val a19: () -> () -> Int = fun() = fun() {}
+    val a20: () -> () -> () -> Unit = fun() = fun() = {}
+    val a21: () -> () -> () -> Int = fun() = fun() = {}
+}
diff --git a/compiler/testData/diagnostics/tests/functionLiterals/missedTypeMismatch.kt b/compiler/testData/diagnostics/tests/functionLiterals/missedTypeMismatch.kt
new file mode 100644
index 00000000000..167a38b890b
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionLiterals/missedTypeMismatch.kt
@@ -0,0 +1,40 @@
+// !DIAGNOSTICS: -UNUSED_VARIABLE -UNUSED_PARAMETER -UNUSED_ANONYMOUS_PARAMETER -UNCHECKED_CAST
+// Issues: KT-38890, KT-38439
+
+fun foo(x: () -> Int) {}
+
+fun <T>id(x: T) = x
+
+// Before the fix, there wasn't any type mismatch error in NI due to result type not being a subtype of expected type
+fun main() {
+    val x: () -> Int = { <!TYPE_MISMATCH!>""<!> }
+
+    val a0: () -> Int = <!TYPE_MISMATCH!>fun(): String = "1"<!>
+    val a1: () -> Int = (<!TYPE_MISMATCH!>fun() = "1"<!>)
+    val a2: () -> Unit = (<!TYPE_MISMATCH!>fun() = "1"<!>)
+    val a3: Unit = (<!TYPE_MISMATCH!>fun() = "1"<!>)
+    val a4 = (fun() = "1")
+    val a5 = (fun(): String = "1")
+    val a6: () -> Int = (fun() = 1)
+    val a7: () -> Int = (fun(): String = "1") as () -> Int
+    val a8: () -> Int = <!TYPE_MISMATCH!>fun(): String = "1"<!>
+    val a9: () -> () -> () -> Int = <!TYPE_MISMATCH!>fun(): () -> () -> String = fun(): () -> String = fun(): String = "1"<!>
+
+    foo(<!TYPE_MISMATCH!>fun(): String = "1"<!>)
+    foo(((<!TYPE_MISMATCH!>fun(): String = "1"<!>)))
+
+    val a10: Int.(String) -> Int = <!TYPE_MISMATCH!>fun (x: String) = 10<!>
+    val a11: () -> () -> () -> Int = <!TYPE_MISMATCH!>fun() = fun() = fun(): String = "1"<!>
+
+    val a12: Int = <!TYPE_MISMATCH!>fun(): String = "1"<!>
+    val a13: Int = <!TYPE_MISMATCH!>fun() = fun(): String = "1"<!>
+    val a14: Int = <!TYPE_MISMATCH!>fun() = fun() = "1"<!>
+    val a15: Int = <!TYPE_MISMATCH!>fun() = fun() = {}<!>
+    val a16: Int = <!TYPE_MISMATCH!>fun() = fun() {}<!>
+
+    val a17: () -> Unit = fun() {}
+    val a18: () -> Int = <!TYPE_MISMATCH!>fun() {}<!>
+    val a19: () -> () -> Int = <!TYPE_MISMATCH!>fun() = fun() {}<!>
+    val a20: () -> () -> () -> Unit = fun() = fun() = {}
+    val a21: () -> () -> () -> Int = <!TYPE_MISMATCH!>fun() = fun() = {}<!>
+}
diff --git a/compiler/testData/diagnostics/tests/functionLiterals/missedTypeMismatch.txt b/compiler/testData/diagnostics/tests/functionLiterals/missedTypeMismatch.txt
new file mode 100644
index 00000000000..8da0a5859d3
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/functionLiterals/missedTypeMismatch.txt
@@ -0,0 +1,5 @@
+package
+
+public fun foo(/*0*/ x: () -> kotlin.Int): kotlin.Unit
+public fun </*0*/ T> id(/*0*/ x: T): T
+public fun main(): kotlin.Unit
diff --git a/compiler/testData/diagnostics/tests/inference/completion/anonymousFunction.fir.kt b/compiler/testData/diagnostics/tests/inference/completion/anonymousFunction.fir.kt
new file mode 100644
index 00000000000..dc35cde2de0
--- /dev/null
+++ b/compiler/testData/diagnostics/tests/inference/completion/anonymousFunction.fir.kt
@@ -0,0 +1,24 @@
+// !LANGUAGE: +NewInference
+// !DIAGNOSTICS: -UNUSED_PARAMETER
+
+fun take(fn: () -> List<String>) {}
+fun <L> inferFromLambda(fn: () -> L): L = TODO()
+fun <L> inferFromLambda2(fn: (Int) -> L): L = TODO()
+
+fun <T> materialize(): T = TODO()
+fun <I> id(arg: I) = arg
+
+fun testFunctions() {
+    take { materialize() }
+    take(fun() = materialize())
+    take(fun(): List<String> = materialize())
+    take(fun(): List<String> {
+        return materialize()
+    })
+}
+
+fun testNestedCalls() {
+    id<String>(inferFromLambda { materialize() })
+    id<String>(inferFromLambda(fun() = materialize()))
+    id<String>(inferFromLambda2(fun() = materialize()))
+}
diff --git a/compiler/testData/diagnostics/tests/inference/completion/anonymousFunction.kt b/compiler/testData/diagnostics/tests/inference/completion/anonymousFunction.kt
index 5fc14bebbe2..75473e3d5a3 100644
--- a/compiler/testData/diagnostics/tests/inference/completion/anonymousFunction.kt
+++ b/compiler/testData/diagnostics/tests/inference/completion/anonymousFunction.kt
@@ -1,9 +1,9 @@
-// FIR_IDENTICAL
 // !LANGUAGE: +NewInference
 // !DIAGNOSTICS: -UNUSED_PARAMETER
 
 fun take(fn: () -> List<String>) {}
 fun <L> inferFromLambda(fn: () -> L): L = TODO()
+fun <L> inferFromLambda2(fn: (Int) -> L): L = TODO()
 
 fun <T> materialize(): T = TODO()
 fun <I> id(arg: I) = arg
@@ -20,4 +20,5 @@ fun testFunctions() {
 fun testNestedCalls() {
     id<String>(inferFromLambda { materialize() })
     id<String>(inferFromLambda(fun() = materialize()))
+    id<String>(inferFromLambda2(<!TYPE_MISMATCH, TYPE_MISMATCH, TYPE_MISMATCH!>fun<!EXPECTED_PARAMETERS_NUMBER_MISMATCH!>()<!> = materialize()<!>))
 }
diff --git a/compiler/testData/diagnostics/tests/inference/completion/anonymousFunction.txt b/compiler/testData/diagnostics/tests/inference/completion/anonymousFunction.txt
index ba09cc8ce83..31673e675d0 100644
--- a/compiler/testData/diagnostics/tests/inference/completion/anonymousFunction.txt
+++ b/compiler/testData/diagnostics/tests/inference/completion/anonymousFunction.txt
@@ -2,6 +2,7 @@ package
 
 public fun </*0*/ I> id(/*0*/ arg: I): I
 public fun </*0*/ L> inferFromLambda(/*0*/ fn: () -> L): L
+public fun </*0*/ L> inferFromLambda2(/*0*/ fn: (kotlin.Int) -> L): L
 public fun </*0*/ T> materialize(): T
 public fun take(/*0*/ fn: () -> kotlin.collections.List<kotlin.String>): kotlin.Unit
 public fun testFunctions(): kotlin.Unit
diff --git a/compiler/testData/diagnostics/tests/inference/completion/postponedArgumentsAnalysis/basic.kt b/compiler/testData/diagnostics/tests/inference/completion/postponedArgumentsAnalysis/basic.kt
index f9af745674a..376b81c8f35 100644
--- a/compiler/testData/diagnostics/tests/inference/completion/postponedArgumentsAnalysis/basic.kt
+++ b/compiler/testData/diagnostics/tests/inference/completion/postponedArgumentsAnalysis/basic.kt
@@ -153,7 +153,7 @@ fun main() {
     // Convert to extension lambda is impossible because the lambda parameter types aren't specified explicitly
     select(id(fun String.(x: String) {}), id(fun(x: String, y: String) { }), <!TYPE_MISMATCH!>{ <!EXPECTED_PARAMETERS_NUMBER_MISMATCH!>x, <!CANNOT_INFER_PARAMETER_TYPE!>y<!><!> -> x }<!>)
     select(id(id(fun(x: String, y: String) { }), <!TOO_MANY_ARGUMENTS!>fun String.(x: String) {}<!>), { x, y -> x })
-    val x26: Int.(String) -> Int = fun (x: String) = 10 // it must be error, see KT-38439
+    val x26: Int.(String) -> Int = <!TYPE_MISMATCH!>fun (x: String) = 10<!> // it must be error, see KT-38439
     // Receiver must be specified in anonymous function declaration
     val x27: Int.(String) -> Int = id(<!TYPE_MISMATCH!>fun <!EXPECTED_PARAMETERS_NUMBER_MISMATCH!>(<!EXPECTED_PARAMETER_TYPE_MISMATCH!>x: String<!>)<!> = 10<!>)
     select(id<Int.(String) -> Unit> {}, { x: Int, y: String -> x })
diff --git a/compiler/testData/diagnostics/tests/regressions/kt352.kt b/compiler/testData/diagnostics/tests/regressions/kt352.kt
index 89d65292cba..5bd249c75ea 100644
--- a/compiler/testData/diagnostics/tests/regressions/kt352.kt
+++ b/compiler/testData/diagnostics/tests/regressions/kt352.kt
@@ -15,7 +15,7 @@ class A() {
 
 //more tests
 val g : () -> Unit = { <!UNUSED_EXPRESSION!>42<!> }
-val gFunction : () -> Unit = <!OI;TYPE_MISMATCH!>fun(): Int = 1<!>
+val gFunction : () -> Unit = <!TYPE_MISMATCH!>fun(): Int = 1<!>
 
 val h : () -> Unit = { doSmth() }
 
diff --git a/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java b/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java
index 8ccb0ce7052..2dc09770362 100644
--- a/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java
+++ b/compiler/tests/org/jetbrains/kotlin/checkers/DiagnosticsTestGenerated.java
@@ -8202,6 +8202,11 @@ public class DiagnosticsTestGenerated extends AbstractDiagnosticsTestWithFirVali
                 runTest("compiler/testData/diagnostics/tests/functionLiterals/lambdaInLambda2.kt");
             }
 
+            @TestMetadata("missedTypeMismatch.kt")
+            public void testMissedTypeMismatch() throws Exception {
+                runTest("compiler/testData/diagnostics/tests/functionLiterals/missedTypeMismatch.kt");
+            }
+
             @TestMetadata("prematurelyAnalyzingLambdaWhileFixingTypeVariableForAnotherArgument.kt")
             public void testPrematurelyAnalyzingLambdaWhileFixingTypeVariableForAnotherArgument() throws Exception {
                 runTest("compiler/testData/diagnostics/tests/functionLiterals/prematurelyAnalyzingLambdaWhileFixingTypeVariableForAnotherArgument.kt");
diff --git a/compiler/tests/org/jetbrains/kotlin/checkers/javac/DiagnosticsUsingJavacTestGenerated.java b/compiler/tests/org/jetbrains/kotlin/checkers/javac/DiagnosticsUsingJavacTestGenerated.java
index b262053f52f..de9f0a087ef 100644
--- a/compiler/tests/org/jetbrains/kotlin/checkers/javac/DiagnosticsUsingJavacTestGenerated.java
+++ b/compiler/tests/org/jetbrains/kotlin/checkers/javac/DiagnosticsUsingJavacTestGenerated.java
@@ -8197,6 +8197,11 @@ public class DiagnosticsUsingJavacTestGenerated extends AbstractDiagnosticsUsing
                 runTest("compiler/testData/diagnostics/tests/functionLiterals/lambdaInLambda2.kt");
             }
 
+            @TestMetadata("missedTypeMismatch.kt")
+            public void testMissedTypeMismatch() throws Exception {
+                runTest("compiler/testData/diagnostics/tests/functionLiterals/missedTypeMismatch.kt");
+            }
+
             @TestMetadata("prematurelyAnalyzingLambdaWhileFixingTypeVariableForAnotherArgument.kt")
             public void testPrematurelyAnalyzingLambdaWhileFixingTypeVariableForAnotherArgument() throws Exception {
                 runTest("compiler/testData/diagnostics/tests/functionLiterals/prematurelyAnalyzingLambdaWhileFixingTypeVariableForAnotherArgument.kt");
diff --git a/core/descriptors/src/org/jetbrains/kotlin/types/TypeUtils.java b/core/descriptors/src/org/jetbrains/kotlin/types/TypeUtils.java
index 78d3c424297..174d1e06723 100644
--- a/core/descriptors/src/org/jetbrains/kotlin/types/TypeUtils.java
+++ b/core/descriptors/src/org/jetbrains/kotlin/types/TypeUtils.java
@@ -428,9 +428,11 @@ public class TypeUtils {
             SmartSet<KotlinType> visited
     ) {
         if (type == null) return false;
-        if (visited != null && visited.contains(type)) return false;
 
         UnwrappedType unwrappedType = type.unwrap();
+
+        if (noExpectedType(type)) return isSpecialType.invoke(unwrappedType);
+        if (visited != null && visited.contains(type)) return false;
         if (isSpecialType.invoke(unwrappedType)) return true;
 
         if (visited == null) {