diff --git a/src/fsharp/Optimizer.fs b/src/fsharp/Optimizer.fs
index ec0c4d6686f..16bfa69bd3d 100644
--- a/src/fsharp/Optimizer.fs
+++ b/src/fsharp/Optimizer.fs
@@ -1066,7 +1066,7 @@ let AbstractLazyModulInfoByHiding isAssemblyBoundary mhi =
            ValInfos = 
                ValInfos(ss.ValInfos.Entries 
                          |> Seq.filter (fun (vref,_) -> not (hiddenVal vref.Deref))
-                         |> Seq.map (fun (vref,e) -> check (* "its implementation uses a binding hidden by a signature" m *)  vref (abstractValInfo e) )) } 
+                         |> Seq.map (fun (vref,e) -> (vref, (abstractValInfo e) ))) } 
     and abstractLazyModulInfo (ss:LazyModuleInfo) = 
           ss.Force() |> abstractModulInfo |> notlazy
 
@@ -2749,7 +2749,14 @@ and OptimizeLambdas (vspec: Val option) cenv env topValInfo e ety =
         let valu =   
           match baseValOpt with 
           | None -> CurriedLambdaValue (lambdaId,arities,bsize,expr',ety) 
-          | _ -> UnknownValue
+          | Some baseVal -> 
+              let fvs = freeInExpr CollectLocals body'
+              if fvs.UsesMethodLocalConstructs || fvs.FreeLocals.Contains baseVal then 
+                 UnknownValue
+              else 
+                  let expr2 = mkMemberLambdas m tps ctorThisValOpt None vsl (body',bodyty)
+                  CurriedLambdaValue (lambdaId,arities,bsize,expr2,ety) 
+                  
 
         expr', { TotalSize=bsize + (if isTopLevel then methodDefnTotalSize else closureTotalSize); (* estimate size of new syntactic closure - expensive, in contrast to a method *)
                  FunctionSize=1; 
@@ -3055,7 +3062,7 @@ and OptimizeBinding cenv isRec env (TBind(v,e,spBind)) =
             then {einfo with Info=UnknownValue} 
             else einfo 
         if v.MustInline  && IsPartialExprVal einfo.Info then 
-            errorR(InternalError("the mustinline value '"^v.LogicalName^"' was not inferred to have a known value",v.Range));
+            errorR(NumberedError(FSComp.SR.optValueMarkedInlineButIncomplete(v.DisplayName), v.Range))
 #if DEBUG
         if verboseOptimizations then dprintf "val %s gets opt info %s\n" (showL(valL v)) (showL(exprValueInfoL cenv.g einfo.Info));
 #endif
diff --git a/tests/.gitignore b/tests/.gitignore
index eca5ba1118f..531297fba98 100644
--- a/tests/.gitignore
+++ b/tests/.gitignore
@@ -1,4 +1,6 @@
 FSharp_*
 FSharpQA_*
 CoreUnit_*
-TestResults
\ No newline at end of file
+TestResults
+
+**/_perm.txt
\ No newline at end of file
diff --git a/tests/fsharp/core/subtype/test.fsx b/tests/fsharp/core/subtype/test.fsx
index 321c202c963..4b594f3f4c1 100644
--- a/tests/fsharp/core/subtype/test.fsx
+++ b/tests/fsharp/core/subtype/test.fsx
@@ -1696,6 +1696,25 @@ module RecordPropertyConstraintTests =
     check "ckjwnewk" (f8()) (System.TimeSpan.FromSeconds 2.0) // after mutation
     check "ckjwnewk" (f10()) "Gary"
 
+// See https://github.com/Microsoft/visualfsharp/issues/740 - inlining on subtypes was not allowed
+module InliningOnSubTypes1 = 
+    type A() =
+        static member inline dosomething() = ()
+
+    type B() =
+        inherit A()
+        member inline this.SomethingElse a = a + 10
+        member inline this.SomethingElse2 a b = a + b + 10
+
+    let f () = 
+        let b = B() 
+        let x1 = b.SomethingElse 3
+        let x2 = b.SomethingElse2 3 4
+        (x1, x2)
+    do check "clkewlijwlkw" (f()) (13, 17) 
+
+
+
 
 // See https://github.com/Microsoft/visualfsharp/issues/238
 module GenericPropertyConstraintSolvedByRecord = 
diff --git a/tests/fsharp/optimize/.gitignore b/tests/fsharp/optimize/.gitignore
index 2de025a1737..1ec792c9c34 100644
--- a/tests/fsharp/optimize/.gitignore
+++ b/tests/fsharp/optimize/.gitignore
@@ -8,6 +8,8 @@ inline/FSharpOptimizationData.*
 inline/FSharpSignatureData.*
 inline/*.il
 inline/*.res
+inline/*.err
+inline/*.diff
 
 stats/*.resources
 stats/*.il
diff --git a/tests/fsharp/optimize/inline/build.bat b/tests/fsharp/optimize/inline/build.bat
index a75d70755fa..4745a80026f 100644
--- a/tests/fsharp/optimize/inline/build.bat
+++ b/tests/fsharp/optimize/inline/build.bat
@@ -28,6 +28,9 @@ if ERRORLEVEL 1 goto Error
 "%FSC%" %fsc_flags% --optimize -o:test--optimize.exe -g test.fs -r:lib--optimize.dll  -r:lib3--optimize.dll
 if ERRORLEVEL 1 goto Error
 
+call ..\..\single-neg-test.bat neg01
+@if ERRORLEVEL 1 goto Error
+
 :Ok
 echo Built fsharp %~f0 ok.
 echo. > build.ok
diff --git a/tests/fsharp/optimize/inline/neg01.bsl b/tests/fsharp/optimize/inline/neg01.bsl
new file mode 100644
index 00000000000..529c3e96a77
--- /dev/null
+++ b/tests/fsharp/optimize/inline/neg01.bsl
@@ -0,0 +1,4 @@
+
+neg01.fs(16,22,16,24): optimize error FS1113: The value 's2' was marked inline but its implementation makes use of an internal or private function which is not sufficiently accessible
+
+neg01.fs(16,22,16,24): optimize error FS1113: The value 's2' was marked inline but its implementation makes use of an internal or private function which is not sufficiently accessible
diff --git a/tests/fsharp/optimize/inline/neg01.fs b/tests/fsharp/optimize/inline/neg01.fs
new file mode 100644
index 00000000000..9953715a42c
--- /dev/null
+++ b/tests/fsharp/optimize/inline/neg01.fs
@@ -0,0 +1,17 @@
+namespace Neg01
+
+(* Optimizer should not throw InternalError when it
+   encounters an inline method that references `base`,
+   a compilation error should be reported instead.
+   See issue: https://github.com/Microsoft/visualfsharp/issues/740 *)
+
+type Base<'T>() =
+    
+    member __.s() = ()
+
+type Class<'T>() =
+    inherit Base<'T>()
+
+    member inline __.Bar x = x
+    member inline __.s2() = base.s()
+    member inline this.s3() = this.Bar 1 |> ignore
diff --git a/tests/fsharp/typecheck/.gitignore b/tests/fsharp/typecheck/.gitignore
index 4bfefa6abed..68d1a2ceee0 100644
--- a/tests/fsharp/typecheck/.gitignore
+++ b/tests/fsharp/typecheck/.gitignore
@@ -1,7 +1,9 @@
 sigs/*.err
 sigs/*.vserr
-sigs/pos*.dll
-sigs/pos*.exe
+sigs/*.dll
+sigs/*.exe
+sigs/*.diff
+sigs/*.vsdiff
 
 full-rank-arrays/HighRankArrayTests.dll