I have a full understanding of how a disregarded entity account needs to be set up and how the W-9 needs to be completed (with the owner's name on line 1 of the W-9 and the owner's TIN being used).

However, I'm at a loss as to how to explain to my colleagues how a disegarded entity could conceivably have its own EIN but that it should not be used on the W-9. I know that it has something to do with whether or not the disregarded entity has employees, but that's it. Can someone please expand on this for me?

Yes - they would only need an EIN for payroll purposes. The W-9 instructions explain how to complete the form and what number for them to give you for a disregarded entity.

https://www.irs.gov/pub/irs-pdf/p1281.pdf

Encourage them to read it before asking further questions.

Thanks rlcarey. I knew it would be you that came through with the answer for me. I did show them the instructions and have gone over it ad nauseam; it seems almost too easy that an EIN is simply for payroll purposes and I just wanted to double-check that I wasn't missing a step somewhere.