Friend of mine pulled this out of his gas tank. (94 Softail) it's the consistency of paper. Any thoughts on what it is?

 

Looks like old tank lining material.

 

Any suggestion on what he should do about it? He wants to sell the bike after correcting any issue. It's a nice older garage kept low mile bike.

 

You just said it. Garage kept, older bike, low miles. The condensation that forms on 'cool' metal creates rust on the inside of the fuel tank, thereby removing the inner lining, whatever that might be.
The only way I know to actually 'get the bike right' is to take off the tank and have the inside sand blasted, or bead blasted, to remove any residue. Then 'cream' the tank to seal it from any further deterioration.

 

I wouldn't use cream or red Kote blab bla bla... I'd just keep flushing that junk out and keep the tank full at all times possible. My 90 Evo didn't even have tank lining and I had that bike for quite a while.
My current 2000 fat boy has peeling liner and every season I flush all the loose pieces out, so far no rust. But I always keep a full tank esp when it's going to be sitting for a while.