I am developing the app in a windows server 2012 where I have installed VS 2013(DEV PC is where published website is, the server), but no crystal reports, just the runtimes. IIS server has access to DB2 database. Sorry for my ignorance, but could you please give me more details on how to accomplish the first part of your reply?
Start IIS under a local PC Admin account same one the Client was installed under, it should then have access to the DB 2 client and if that works you know the reason why.