diff --git a/compiler/src/dotty/tools/dotc/transform/TailRec.scala b/compiler/src/dotty/tools/dotc/transform/TailRec.scala
index d054c5aa6232..5cc50f220eaf 100644
--- a/compiler/src/dotty/tools/dotc/transform/TailRec.scala
+++ b/compiler/src/dotty/tools/dotc/transform/TailRec.scala
@@ -430,8 +430,11 @@ class TailRec extends MiniPhase {
           tree
 
         case tree: ValDef =>
-          if (isMandatory) noTailTransform(tree.rhs)
-          tree
+          // This could contain a return statement in a code block, so we do have to go into it.
+          cpy.ValDef(tree)(
+            tree.name,
+            noTailTransform(tree.rhs)
+          )
 
         case tree: DefDef =>
           if (isMandatory)
diff --git a/tests/run/i20145.check b/tests/run/i20145.check
new file mode 100644
index 000000000000..f6af6debe594
--- /dev/null
+++ b/tests/run/i20145.check
@@ -0,0 +1 @@
+10000001
diff --git a/tests/run/i20145.scala b/tests/run/i20145.scala
new file mode 100644
index 000000000000..ea26f00e2c89
--- /dev/null
+++ b/tests/run/i20145.scala
@@ -0,0 +1,15 @@
+import scala.annotation.tailrec
+@tailrec
+def foo(i: Int): Int = {
+  if (i > 10000000) {
+    i
+  } else {
+    val bar: String = {
+      return foo(i + 1)
+      "foo"
+    }
+    -1
+  }
+}
+@main def Test =
+  println(foo(0))
\ No newline at end of file