diff --git a/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/Errors.java b/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/Errors.java
index b5e0641fa11..bac4ec139b9 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/Errors.java
+++ b/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/Errors.java
@@ -731,7 +731,6 @@ public interface Errors {
     DiagnosticFactory0<KtExpressionWithLabel> BREAK_OR_CONTINUE_IN_WHEN = DiagnosticFactory0.create(ERROR);
     DiagnosticFactory0<KtExpressionWithLabel> BREAK_OR_CONTINUE_JUMPS_ACROSS_FUNCTION_BOUNDARY = DiagnosticFactory0.create(ERROR);
     DiagnosticFactory1<KtExpressionWithLabel, String> NOT_A_LOOP_LABEL = DiagnosticFactory1.create(ERROR);
-    DiagnosticFactory1<KtReturnExpression, String> NOT_A_RETURN_LABEL = DiagnosticFactory1.create(ERROR);
 
     // Control flow / Data flow
 
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 da62bab5060..e64cbf42cd4 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/rendering/DefaultErrorMessages.java
+++ b/compiler/frontend/src/org/jetbrains/kotlin/diagnostics/rendering/DefaultErrorMessages.java
@@ -555,7 +555,6 @@ public class DefaultErrorMessages {
         MAP.put(BREAK_OR_CONTINUE_IN_WHEN, "'break' and 'continue' are not allowed in 'when' statements. Consider using labels to continue/break from the outer loop");
         MAP.put(BREAK_OR_CONTINUE_JUMPS_ACROSS_FUNCTION_BOUNDARY, "'break' or 'continue' jumps across a function or a class boundary");
         MAP.put(NOT_A_LOOP_LABEL, "The label ''{0}'' does not denote a loop", STRING);
-        MAP.put(NOT_A_RETURN_LABEL, "The label ''{0}'' does not reference to a context from which we can return", STRING);
 
         MAP.put(ANONYMOUS_INITIALIZER_IN_INTERFACE, "Anonymous initializers are not allowed in interfaces");
         MAP.put(NULLABLE_SUPERTYPE, "A supertype cannot be nullable");
diff --git a/compiler/frontend/src/org/jetbrains/kotlin/types/expressions/ControlStructureTypingVisitor.java b/compiler/frontend/src/org/jetbrains/kotlin/types/expressions/ControlStructureTypingVisitor.java
index 2bd48ac98d4..930580fd640 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/types/expressions/ControlStructureTypingVisitor.java
+++ b/compiler/frontend/src/org/jetbrains/kotlin/types/expressions/ControlStructureTypingVisitor.java
@@ -1,5 +1,5 @@
 /*
- * Copyright 2010-2016 JetBrains s.r.o.
+ * Copyright 2010-2017 JetBrains s.r.o.
  *
  * Licensed under the Apache License, Version 2.0 (the "License");
  * you may not use this file except in compliance with the License.
@@ -623,9 +623,6 @@ public class ControlStructureTypingVisitor extends ExpressionTypingVisitor {
                     resultType = ErrorUtils.createErrorType(RETURN_NOT_ALLOWED_MESSAGE);
                 }
             }
-            else {
-                context.trace.report(NOT_A_RETURN_LABEL.on(expression, expression.getLabelName()));
-            }
         }
 
         if (returnedExpression != null) {
diff --git a/compiler/frontend/src/org/jetbrains/kotlin/types/expressions/LabelResolver.kt b/compiler/frontend/src/org/jetbrains/kotlin/types/expressions/LabelResolver.kt
index a00bc6ee41d..efeefd14a64 100644
--- a/compiler/frontend/src/org/jetbrains/kotlin/types/expressions/LabelResolver.kt
+++ b/compiler/frontend/src/org/jetbrains/kotlin/types/expressions/LabelResolver.kt
@@ -106,32 +106,10 @@ object LabelResolver {
         val labelName = expression.getLabelNameAsName()
         if (labelElement == null || labelName == null) return null
 
-        val element = resolveNamedLabel(labelName, labelElement, context.trace)
-        if (element != null) return element
-
-        val declarationsByLabel = context.scope.getDeclarationsByLabel(labelName)
-        when (declarationsByLabel.size) {
-            0 -> {
-                context.trace.report(UNRESOLVED_REFERENCE.on(labelElement, labelElement))
-                return null
-            }
-            1 -> {
-                val declarationDescriptor = declarationsByLabel.single()
-                if (declarationDescriptor is FunctionDescriptor || declarationDescriptor is ClassDescriptor) {
-                    val declarationElement = DescriptorToSourceUtils.descriptorToDeclaration(declarationDescriptor)
-                    if (declarationElement is KtElement) {
-                        context.trace.record(LABEL_TARGET, labelElement, declarationElement)
-                        return declarationElement
-                    }
-                }
-            }
-            else -> {
-                BindingContextUtils.reportAmbiguousLabel(context.trace, labelElement, declarationsByLabel)
-                return null
-            }
+        return resolveNamedLabel(labelName, labelElement, context.trace) ?: run {
+            context.trace.report(UNRESOLVED_REFERENCE.on(labelElement, labelElement))
+            null
         }
-
-        return null
     }
 
     private fun resolveNamedLabel(
diff --git a/compiler/testData/diagnostics/tests/Return.kt b/compiler/testData/diagnostics/tests/Return.kt
index e540b5071c3..f1b0d7cee9d 100644
--- a/compiler/testData/diagnostics/tests/Return.kt
+++ b/compiler/testData/diagnostics/tests/Return.kt
@@ -6,10 +6,10 @@ class A {
             if (1 < 2)
                 return@inner
             else
-                <!RETURN_NOT_ALLOWED!>return@outer<!>
+            <!RETURN_NOT_ALLOWED!>return@outer<!>
         }
         if (1 < 2)
-            <!NOT_A_RETURN_LABEL!>return@A<!>
+            return<!UNRESOLVED_REFERENCE!>@A<!>
         else if (2 < 3)
             return<!UNRESOLVED_REFERENCE!>@inner<!>
         return@outer