Always flatten unions on creation

mypy/types.py

@@ -987,7 +987,7 @@ class UnionType(Type):
     items = None  # type: List[Type]
 
     def __init__(self, items: List[Type], line: int = -1, column: int = -1) -> None:
-        self.items = items
+        self.items = flatten_nested_unions(items)
         self.can_be_true = any(item.can_be_true for item in items)
         self.can_be_false = any(item.can_be_false for item in items)
         super().__init__(line, column)
@@ -1732,6 +1732,17 @@ def get_type_vars(typ: Type) -> List[TypeVarType]:
     return tvars
 
 
+def flatten_nested_unions(types: Iterable[Type]) -> List[Type]:
+    """Flatten nested unions in a type list."""
+    flat_items = []  # type: List[Type]
+    for tp in types:
+        if isinstance(tp, UnionType):
+            flat_items.extend(flatten_nested_unions(tp.items))
+        else:
+            flat_items.append(tp)
+    return flat_items
+
+
 def union_items(typ: Type) -> List[Type]:
     """Return the flattened items of a union type.
 

test-data/unit/check-unions.test

@@ -453,6 +453,21 @@ reveal_type(l) \
     # E: Revealed type is 'builtins.list[Union[builtins.bool, builtins.int, builtins.float, builtins.str]]'
 [builtins fixtures/list.pyi]
 
+[case testNestedUnionsProcessedCorrectly]
+from typing import Union
+
+class A: pass
+class B: pass
+class C: pass
+
+def foo(bar: Union[Union[A, B], C]) -> None:
+    if isinstance(bar, A):
+        reveal_type(bar)  # E: Revealed type is '__main__.A'
+    else:
+        reveal_type(bar)  # E: Revealed type is 'Union[__main__.B, __main__.C]'
+[builtins fixtures/isinstance.pyi]
+[out]
+
 [case testAssignAnyToUnion]
 from typing import Union, Any
 x: Union[int, str]